Asia Pacific markets were weaker across the board after a sharp sell-off in US equities saw the Dow, the S&P, and the Nasdaq plunge 1.3%, 1.5%, and 1.7% respectively. Weighing on global equities has been a flurry of negative comments by policy-makers and poor economic data out of the US. A disappointing existing home sales report upset even the most extreme estimates, with July sales plummeting 27.2% m/m, its steepest decline in more than a decade. Although much of the move can be attributed to the expiration of the home buyers tax credit, the question arises on whether real demand will be able to clear the elevated level of existing inventories and return to growth. The report bolstered classic haven flows, benefitting the greenback, the yen, and gold, as concerns of renewed weakness in the housing sector continue to mount. Losses were exacerbated by news that Standard & Poor's had downgraded Ireland's debt rating to AA-, citing the nation will face substantially higher costs to support the ailed financial sector. A negative handoff to Asia Pacific markets saw similar results, with the S&P/ASX 200 index, the Nikkei 225, and the Shanghai SE composite lower by 1.4%, 1.7%, and 2.0% respectively.
Bond Rally Continues
Global bond yields continue to fall amid heightened risk aversion, with the UK 10-year GILT hitting fresh record lows at 2.837. The German 10-year Bund made new lows below 2.150, while the spread between German and Greek 10-year bonds rose for the fourth consecutive day, bettering 885 basis points. The relentless widening of the spread suggests investors remain skeptical about the nation's ability to recover from its debt woes. The US 10-year note fell to a 17-month low at 2.486, while the 5-year hit a 19-month low at 1.329.Commodities were mixed in London trade with crude oil unable to recoup losses sustained yesterday that pushed prices as low as $71.35 per barrel. Gold was firmer at $1236, its highest level in nearly 2months, as investors shed riskier investments for lower yielding, 'safe haven' assets.
IFO Props Euro
A stronger than expected IFO report from Germany boosted the euro early in European trade. All three surveys beat consensus estimates, with the August business climate printing at 106.7, its highest reading since June of 2007. The report provided some relief for the battered euro which scraped a six week low against the greenback yesterday at 1.2586. The single currency remains under considerable pressure however, with traders adding to shorts at the 1.27 handle. Targets are set at 1.2630, followed by the 1.26 figure, and 1.2560. Interim resistance stands at 1.27, with subsequent ceilings emerging at 1.2730, 1.28 and 1.2880.
Yen Eases
The yen was the worst G7 performer against the dollar, pulling back from a 15-year high to trade around 84.50 early in the session. Although there has been speculation that the Japanese authorities may intervene to stem the currency's rapid appreciation, we do not believe the BoJ will move on these levels. However, much of the decision will based on the price action, with a sudden move to the upside (specifically versus the euro and the dollar) likely to warrant something other than verbal rhetoric and government jawboning. The USD/JPY pair is called lower, with targets eyed at 84.20 followed by the 84 handle, and 83.50. Resistance is seen at the 61.8% Fibonacci extension taken from the April 6th 09' and May 5th crests, at 84.70. Stronger supply rests higher at the 85 figure, followed by 85.70 and 86.30.
A string of economic data today will give investors a closer look at the health of the housing sector, with MBA mortgage applications, new home sales, and the home price index all on the agenda. July home sales are seen flat m/m, with the price index called firmer by meager 0.1% m/m. Weaker than expected data in these reports will fuel speculation that the housing market may yet experience a second decline. Ahead of the open, at 8:30am in New York, July durable goods orders are out, with the figure seen higher at 3.0%, up from the previous reading of -1.0%. Tomorrow, Germany reports on GfK consumer confidence, and the Eurozone releases M3 growth rate figures. European markets are softer across the board, with US equity futures pointing to a slightly weaker open in New York.
