ICAP AM REPORT - reposted by andre di cioccio

Well the Europeans don’t seem to be double dipping. If anything the economy accelerated in July after what’s looking like a strong Q2. The PMI’s (for both the services and the manufacturing sectors) beat expectations for a fall and actually rose. So after last night’s move, the indexes sit about 8-12% above average – obviously pointing to continued robust growth. Backing that, industrial orders were up another 3.8% in May after a 0.6% rise in the month prior. Get on board.

I reckon the best news came out of the UK though. Consumer spending came in at almost twice the expected rate in June, surging 1% for the month. Even better, the previous month was revised up also (0.7% from 0.5%). From where I’m sitting it looks like households are going to make a solid contribution to UK GDP in Q2 (due tonight). This is a great result which should dispel unfounded fears of a double dip. Unfortunately it also highlights the absurdity in discussing further quantitative easing. Truly. The fact that it was even talked about by the MPC with inflation well above target and the economy on a solid footing beggars belief.

The good data nevertheless gave a solid bid to stocks overnight with indices in Europe up between 1.9% (FTSE) and 2.5% (Dax). The flow through to the US was immediate with the S&P up 1.1% shortly after the open. Another round of very strong earnings results is obviously helping here and the good news, is that not only are many of these companies eclipsing earnings estimates, they are revising up their outlooks as well. At the close then, the S&P500 rose 2.3% (1093), with financials, basic materials and industrials leading the index higher – all up over 3%. The Dow was up 201pts to 10322, the Nasdaq rose 2.7% (2245) and the SPI underperformed rising 1.4% (4408).

You can probably predict what happened in the commodity and FX Space. Okay fair enough probably not the FX space. This time, and I emphasise this time, growth optimism saw USD sell off. Most majors were up over a big figure with EUR at 1.2894, AUD at 0.8936 (highest since mid-May) although Sterling rose only 63pips to 1.5258. Confusion is obviously weighing here what with inflation and retail spending at pretty solid rates, but then the BoE seemingly stuck in a time warp and talking about printing more money. So USD weakness, great earnings and very solid data saw commodities bid. Copper was up 2.3% and crude surged about 3.3% to $79 which is the highest in almost 3 months.

Otherwise rates sold off, the curve bear steepening as the 2yr yield rose 1bp (0.56%) while the 10yr rose 6bp to 2.93%. Ranges were again comparatively narrow and volumes light however (down 24%). Aussie futures were down 7 ticks to 95.25 and 94.79 on the 3s and 10s respectively.

In other news, data out was mixed but generally ok. US home prices rose 0.5% in May (-0.32% expected), existing US home sales fell less than expected (5% v 10%) which leaves sales slightly below average. Then jobless claims rose to 464k from 427k which brings the 4 week moving average to 456k. Continuing claims nevertheless continue to decline, down to 4.5m from 4.7m. Bernanke repeated to the House of Reps Financial Services Committee that although the Fed doesn’t expect the recovery to falter, if it should, they would provide more stimulus. Another Fed speaker Dudley said that growth is ‘far less robust’ than the Fed would like, but the risk of a double dip is slight. Amen brother. Finally in China, a number of government economic agencies predict that growth will range from 9.5-10% this year and that further stimulus measures were not needed. In Canada retail sales fell 0.2% in May.

In Australia, we get export and import prices at 1130. But we know the story. The terms of trade is surging. Other than that we get the German IFO survey at 1800, Taiwan's industrial production and the preliminary estimate of UK GDP which is expected to rise 0.6%.
There is no US data to speak of but the Canadians pump out their June CPI number.

TGIF - have a great weekend…