Week in review July 31-Aug 5

A week of stress and duress has the market seeing red. Five compact trading days that witnessed the US’s last minute signing off on a bill to avoid debt default, sidestepping the rating agencies, to ‘rogue’ Cbanks fruitless intervention efforts being trumped by risk adverse trading strategies, is setting the market up for an eventful end to the summer. The theme of August so far, slower US growth mixed with Euro sovereign credit is reducing everyone’s risk appetite.

Below are some of the highlights of the busy week:


  • Obama and Congressional leaders reached budget and debt ceiling deal. Both houses approved an increase in the US debt limit by at least +$2.1t and cut federal spending by -$2.4t over ten-years.
  • Italian and Spanish financing markets come under renewed selling pressure.
  • Italian PMI edged a touch above 50 while Polish PMI rose a healthy +1.7 points.
  • Greek PMI remained very depressed at 45.4, while Spanish PMI new orders fell to 43.4 from 46.6. Euro manufacturing PMI was left unrevised at 50.4, but with new orders index at a two-year low of 47.6, suggests an extended and more severe period of slowdown.
  • UK manufacturing PMI fell below 50 for the first time since the crisis, index dropped to 49.1 in July from 51.4 in June. The new orders component fell further to 47.5, points to very poor underlying momentum in the UK going into 3rd Q.
  • Norwegian PMI edged higher to 56.5 in July from a revised 56.4 in June, driven by a strong employment index.
  • Swiss PMI remained resilient at 53.5 from 53.4 in June, although, component-wise, new orders fell further to 45.6 from 48.8 – their weakest level since July 2009.
  • UK construction PMI was stronger than expected at 53.5, having moved sideways after 53.6 in June.
  • SNB announces easing measures to combat CHF strength. Warned that it considers ‘the Swiss franc to be massively overvalued, and that ‘the SNB will not tolerate a continual tightening of monetary conditions’. They have created negative interest rates on CHF deposits for foreign wholesale holders of francs. In essence, buyers of Swiss francs will incur a cost to hedge euro risk.
  • Italian services PMI surprised on the upside but remained below 50 for the second consecutive month, index rose to 48.6 from 47.4.
  • Spanish services PMI declined further to 46.1 in July, the lowest level since Dec 2010.
  • Euro-zone services PMI was revised a touch higher to 51.6 down from 57.8 in April. The fast pace of slowdown in core-countries and the contractions in the periphery are threatening the fiscal consolidation process.
  • UK services PMI rose to 55.4 in July from 53.9 in June, against consensus of 53.2. The resilient services sector should cool the QE debate in the UK. This suggests that the BoE will likely delay future tightening.
  • Moody’s reaffirmed its US AAA rating with a negative outlook after US President Obama signed the US debt ceiling bill into law.
  • German June factory orders came in firmer than expected, rising +1.8% against expectations of a +0.5% decline. The prior month’s +1.8% gain was revised down to +1.5%, but the y/y rate still beat consensus.
  • Spain auctioned EUR 1.1bn of 4-year bonds and EUR 2.2bn of 3-year bonds. Bid-to-cover ratios were relatively normal, at 2.1 for the 3-year (vs. 2.3 in July) and 2.4 for the 4-year.
  • As expected, the BoE left policy unchanged (+0.5%)
  • Turkey’s central bank cut its benchmark repo rate by -50bp to +5.75% at an emergency policy meeting.
  • ECB on hold and reactivated two of its most potent anti-crisis measures to prevent the debt crisis reaching Spain; unlimited six-month tender next week and reopening of the SMP or government bond buying.
  • ECB buys Irish and Portuguese bonds.
  • Trichet is to keep unlimited lending policy for MRO’s until year end.
  • German (-1.1%) and Italian (-0.6%) June industrial production came in weaker than expected.
  • Swiss inflation surprised weak for July at +0.5%, y/y vs. +0.7% consensus. It will keep the SNB cautious on emerging deflationary risk as monetary conditions have tightened sharply as a result of the franc’s strength.


  • US ISM manufacturing survey was weak last month and fell more than four points to a two-year low of 50.9 vs. 55.3.
  • US construction spending report increased +0.2% in June. There was a sizable upward revisions to April and May (May +0.3% from -0.6%). Results suggest that 2nd Q GDP should be revised higher.
  • US PCE report was weaker than expected. Core-price index for June was +0.1% vs. +0.25. The ‘miss’ was concentrated in the final month of the quarter.
  • ADP headline print recorded a small gain in services. A downward revision to the prior month (+145k from +157k) cancelled out the small upside surprise in the July print (+114k) to leave ADP roughly in line with expectations (+100k)
  • US non-manufacturing sector expanded at a very sluggish pace last month (52.7 vs. 53.3). Most respondents indicated that ‘business conditions were flattening out’.
  • US June factory orders straddled the negative expectations (-0.8%). However, the trend ex-volatile components (transport and oil) remained modestly positive (durable +0.4% and nondurable +0.8%).
  • US weekly claims stands at +401k, with the prior week revised higher by +3k to +401k.
  • NFP-modestly better than expected print on headline (+117k), revisions (+56k May and June) and details (unemployment rate at +9.1%).
  • Canadian jobs data is firmer (+7.1k and unemployment at +7.1%). Wage growth managed to decelerate again (-1.4%, y/y and is negative after adjusting for inflation) and should be a concern for future consumption.
  • CAN IVY PMI plummeted below expansion level of 50 to 45.4 from 61.5. Does not support growth in 3rd Q


  • China’s July PMI was a higher-than-expected +50.5 and down only -0.2 points from June and suggest that Chinese growth is moderating and not seeing a ‘hard landing’. Monetary policy remains in a tightening mode.
  • Korea CPI rose to +4.7%, y/y in July from +4.4% (higher food and transport costs). Their trade surplus rose to a record-high $7.2b in July from $2.8b in June. Importantly, strong export growth of +27.3%, y/y, in July drove this rise, not import weakness. It’s suggested that the BoK will allow inflows to translate into ‘some’ won appreciation.
  • RBA kept rates unchanged at +4.75% as widely expected. Pricing for an RBA rate cut increased +15bp to +41bp over the next 12 months. Stevens pointed to downside risk to the global outlook and is concerned about Australia’s medium term inflation outlook.
  • China’s non-manufacturing PMI rose to 59.6 in July from 57.0 in June. This is largely in line with the typical seasonal gain of about +2.7 points. Currently, monetary policy remains in a tightening mode.
  • Australia’s retail sales fell for a second consecutive month, printing -0.1%, m/m in June.
  • China’s credit rating agency, Dagong Global, announced a downgrade of its US sovereign rating to A from A+. This is its second downgrade 2010.
  • Japan began intervention in the FX market (initial amount 20-40b), BOJ announced new easing measures, will increase its securities buying program from Â¥10tn to Â¥15tn through increased purchases of J-REITs and increase its lending program from Â¥30tn to Â¥35tn by boosting its six-month loan program.
  • RBA’s quarterly monetary policy report pushed up the bank’s inflation forecast for 2011 and 2012. They see underlying inflation at or above its +3% target for the rest of the year through 2013. They downgraded 2011 GDP growth to +2% from +3.25% in May but upgraded 2012 growth to +4.5% from +4.25%.



  • China and UK give us their CPI and inflation reports
  • Bernanke take center stage mid-week with the FOMC statement and Fed Funds Rate
  • CNY, CAD and USD will take a look at their Trade Balances
  • Employment data from down-under and the US
  • Rounding the week, US Retail Sales and consumer sentiment


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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell