Simple's Green Room

[strongtower]

Top Stories

* Japanese GDP growth misses the mark by wide margin 0.1% vs. 0.6% eyed
* EZ CPI in line at 1.7%
* Nikkei off -0.61, Europe up about 50bp on open
* Oil at $75.50/bbl
* Gold rallies to $1220/oz.

Overnight Eco

* AUD New Motor Vehicle Sales m/m -2.6% vs. -1.4%
* JPY Prelim GDP q/q 0.1% vs. 0.6%
* JPY Prelim GDP Price Index y/y -1.8% vs. -1.8%
* JPY Tertiary Industry Activity m/m -0.1% vs. 0.0%
* EUR CPI y/y 1.7%
* EUR Core CPI y/y 1.0%
* GBP Rightmove HPI m/m -1.7% vs. -0.6%

Event Risk on Tap

* USD Empire State Manufacturing Index expected at 8.2
* USD TIC Long-Term Purchases expected at 36.3B
* USD Mortgage Delinquencies
* USD NAHB Housing Market Index expected at 15

Price Action

* USD/JPY trades at 85.80 in teh wake of weak GDP
* AUD/USD .8950 caps the rebound off Asia lows
* GBP/USD 1.5650 remains resistance for now as Roghtmove weighs
* EUR/USD retakes 1.2800 outperforming other high beta FX

Risk aversion continued to dominate trade in FX on the first day of the week in the wake of much weaker than expected GDP figures out of Japan that raised concerns about the strength of the global recovery into the second half of the year. Japanese GDP data printed markedly worse than expected coming in at 0.1% versus 0.6% eyed as growth in the world’s third largest economy cooled on the back of lackluster consumer demand.

Japanese domestic demand declined at -0.2% while external demand rose 0.3%, both missing expectations of 0.1% and 0.5% increases respectively. After recovering from the largest contraction in post war history, consumer demand in Japan appears to have stalled once again as government incentives fade away, while private capex has been sluggish and unable to propel growth in the overall Japanese economy.

Meanwhile USD/JPY has dribbled below 86.00 with 85.00 coming into view once again. Over the week-end Prime Minister Naoto Kan reiterated his earlier statement that he will "carefully monitor" the yen's exchange rates, but for now Japanese officials are relying solely on verbal intervention to dampen the pace of yen’s appreciation with 85.00 remaining the key level for all the participants to watch.

In UK today the Rightmove housing survey showed the second monthly decline in a row with prices dropping -1.7% following a -0.6% decrease in July. The news dovetails with the results from Nationwide last week and indicates quite clearly that UK housing sector is seeing a material slowdown as growth sputters and demand wanes into the second half of the year. Cable initially shrugged off the news rallying to 1.5640 into the London open, but the unit quickly met resistance at those levels and tumbled back to 1.5560 in early morning trade.

The pair is very vulnerable to a further drop below the psychologically key 1.5500 level if risk aversion flows accelerate throughout the day. After getting a lift last week form M&A flows, cable is now faced with trading solely on fundamental news and to that end this week’s data could only accelerate the decline especially if Retail Sales due Thursday miss their mark.

In Europe the EZ CPI data printed in line at 1.7% as forecast, having little impact on the unit. The EUR/USD however was the outperformer of the night remaining relatively well bid near the 1.2800 level. The single currency received some support from a Bloomberg article indicating that China was redirecting some of massive foreign reserve flows towards European rather than US fixed income instruments. Still concerns over EMU periphery economies continue to pressure the unit with Spanish and Portuguese spreads remaining at last week’s elevated levels. One key point of worry for euro bears is that absent a strong export base, Southern European economies will be unable to generate growth to recover from their current contraction.

Meanwhile in North America today the event risk calendar is relatively light with only Empire Manufacturing and TICs data on the docket. Trader anticipate that the Empire data will rebound to 8.1 from 5.1 the month prior, but if it misses, the news could sour investor sentiment for the rest of the day and accelerate risk aversion flows pushing high beta FX lower.
FX Upcoming
Currency GMT EST Release Expected Prior
USD 12:30 8:30 Empire State Manufacturing Index 8.2 5.1
USD 13:00 9:00 TIC Long-Term Purchases 36.3B 35.4B
USD Mortgage Delinquencies 10.06%
USD 14 10:00 NAHB Housing Market Index 15 14