Action over the weekend developed largely as expected, with the conclusion of the G20 meeting in Moscow giving rise to a statement from the finance ministers and central bank governors that favoured growth policies ahead of additional austerity. The statement also prescribed that monetary policy should continue to support price stability and the economic recovery, while noting that excess volatility in financial flows and exchange rates have negative implications for the recovery and financial stability.
A fairly standard statement from the G20, with nothing to really shock the markets in terms of how monetary policy would be conducted by the major central banks moving forward.
Also as expected, the ruling coalition in Japan landed a decisive victory for the upper house on Sunday, with Shinzo Abe’e LDP and their partner New Komeito securing 74 of 121 seats open for election. This combined with the coalition’s landslide victory of the lower house back in December, should give Abe a stronger foundation by which to push through reforms aimed at reviving Japan’s stagnant economy. After the coalition’s victory on Sunday, Abe reiterated that he will continue to move ahead with his economic reforms, and strengthen the fragile green-shoots of economic recovery that are beginning to emerge. Some Japanese companies are worried that too much power for the LDP-led coalition will allow Abe to turn his attention from economic reform and focus on his nationalist agenda instead, however lower than expected voter turnout suggests the win wasn’t as decisive as the numbers first read, which may force Abe to stay fixated on healing Japan’s ailing economy. The yen has strengthened this morning, as investors took a “sell-the-news” approach to the election results; USDJPY has fallen 0.70% overnight, pivoting right around the 100 handle at the time of writing. The Nikkei was able to buck its usual correlation to the yen, and managed to grind out a small gain of 0.47% by the time its session had finished.
Looking across the Atlantic to Europe, quiet news flow is contributing to a mixed-bag of equity performance midway through the European session. Portuguese president Anibal Cavaco Silva has managed to quell fears over the uncertainty surrounding Portugal’s near-term future, throwing his support behind the current government and squashing the notion of early elections after talks between the main governing parties broke down on Friday night. Portugal’s Prime Minister has also taken steps to reassure markets, vowing to stick to the country’s bailout program and exiting on schedule during 2014. This encouragement from the Portuguese PM is in opposition to a report from Goldman overnight that Portugal would be unable to regain full market access by mid-2014 and would need to discuss another bailout. Despite the pessimistic view of the major investment bank, Portuguese debt is on the rise this morning, with yields on its 10-year debt tumbling to 6.4%. The EUR is slightly stronger against the big dollar this morning, with the EURUSD pair finding bids in the high-1.31 region. On the equity side of things, the FTSE and Dax are turning negative, down 0.23% and 0.08% respectively, while the Stoxx is keep its head above water and is up by 0.19%.
Heading into the North American open, the economic calendar will be situated around Existing Home Sales for the month of June in the US. After the worse than expected data on permits and housing starts last week, analysts are still forecasting the annualized number of residential buildings that were sold in June will total 5.3M. After last month’s 4.2% increase, existing home sales are at their highest levels since November 2009, however additional gains are likely to be muted unless construction ramps up quickly, as listed inventory is 10.1% lower than a year ago.
US equity futures are pivoting around unchanged as we get set for the opening bell, looking for guidance on further direction from existing home sales at 10:00am EST. Hydrocarbons are little changed from their close last week, with WTI and Brent still trading north of $108/barrel with only a $0.20/barrel spread in favour of Brent. The CAD is slightly stronger this morning against its American counterpart, up by 0.20% as the USDCAD pair tries to situate itself south of the 50-day moving average at 1.0350. Strong support at the 61.8% Fibonacci retracement level from the mid-June to early-July rally in the low 1.03s (which held up after Bernanke’s press conference from July 10th) will need to be violated for the current bearish run to retain its momentum.
Looking ahead to tomorrow, Loonie traders will be focused on retail sales data out of Canada for the month of May. The previous two releases have been on the soft side of expectations, although the April release was mainly due to weaker sales at gasoline stations. With gas prices spiking over the month of May, expectations are that we see the headline reading increase by 0.4% from the previous month, with the core reading showing its first increase in three months.
Further reading: Slow Summer Trading-Elliott Wave Overview on EURUSD and S&P