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Risk Adverse Or Merely Cautious?

The rather bad economic data from the States continued on Tuesday with the ISM Non Manufacturing PMI reading. The outcome of 53.8 compared to the estimate of 55.1 certainly didn’t help overall investment sentiment. The USD continued to trade near the weaker parts of its recent range against the EUR and GBP. Wall Street was able to turn in slight gains, but they were unconvincing. Today will be a quiet day of releases and traders will focus on tomorrow’s Unemployment Claims numbers. Friday will also be relatively tranquil for government data, meaning that investors will have to make their decisions based on their existing insights. The commodity markets have turned rather bearish, Crude Oil has come off of its recent highs and the grains find themselves trading without much demand.
The broad markets have exhibited caution for a couple of months and as the summer gets longer investors may be starting to look forward to September and October. By then investors will have a firmer grasp on what the U.S. economy is going to show regarding its third quarter results. As of now, taking into context the trading on Wall Street and within the commodities, it cannot exactly be said that investors are putting forth a vote of confidence. The USD has gained substantially based on a decrease in risk appetite and the greenback remains well positioned. Equities have been struggling for most of the year and they show little signs of finding a crowd of long term buyers at this juncture. Commodities which maneuver within a demand & speculative environment have yet to prove that purchases are coming in greater frequency from producers and manufacturers. The ISM Non Manufacturing PMI reading yesterday, also showed that the American economy is projected to slip. While some feel that a true double dip recession is unlikely to come about, very few are now willing to say that a strong and sustainable recovery is around the corner. The USD is likely to trade in range today.

Tuesday was a light day of releases from the European Union and the EUR was able to turn in stable trading. Today the E.U. will release its Final GDP and a small gain of 0.2% is the estimate. Because this is the final report for the quarter, no surprises are expected from this data, but if a ‘new’ number were to emerge it could cause chaos throughout the market. Also Germany Factory Orders will be released today and the figure anticipated is 0.5%. Having said this, investors will have their eyes on the budget information that will be coming from Germany today and they will be keen to look at ‘austerity’ measures the nation will enact. Also the E.U. is set to release some its methodology on how it is undertaking its ‘stress tests’ within the banking sector. Tomorrow the ECB will hold their monthly policy meeting and given President Trichet’s comments earlier this week, his press conference is sure to be an ‘optimistic affair’. The question is what perceptions investors will take away from today and tomorrow and how this will affect risk sentiment.

Sterling traded in a calm range on Tuesday without any major economic data coming forth.  Today will remain quiet from the U.K., but this will change tomorrow when the BoE will release their monthly monetary policy decision. The Bank of England will certainly not alter their interest rate platform, but investors will be on the lookout for a statement if one is published. Also making the day interesting tomorrow will be the Manufacturing Production figures which are anticipated to show a gain, this after a decline the previous month. The U.K. economy mirrors that of its counterparts. Many questions remain stark and the prospects for a recovery have not shown much promise. The GBP has enjoyed a good week of trading and has shown stability, but shadows still exist.

As Asian bourses moved lower yet again, the JPY continued to find momentum and gain on the USD. The Japanese economy remains mired in troubled waters, but this has not stopped investors from using the Yen as a risk adverse vehicle. Gold broke below 1200.00 USD yesterday and now finds itself around 1188.00 USD per ounce in what has become a hectic market.

Disclosure: No Positions