Market Drivers July 31, 2012
Unemployment across Europe rises
China’s Wen hints at more RR cuts
Nikkei up 0.69% Europe up 0.35%
Oil at $89/bbl
Gold 1627/oz.

Europe and Asia:
AUD HIA New Home Sales -2.5% vs. -14.4%
AUD Private Sector Credit 0.3% vs. 0.4%
JPY Jobless Rate 4.3% vs. 4.4%
JPY Household Spending 1.6% vs. 3.0%
NZD NBNZ Business Confidence 15.1 vs. 12.6
CHF UBS Consumption Indicator 1.60 vs. 1.02
EUR German Retail Sales -0.1% vs. 0.6%
EUR German Unemployment Change 7K vs. 9K

North America:
USD Personal Spending 8:30
USD Personal Consumption Expenditure 8:30
USD Consumer Confidence 10:00
CAD GDP 8:30

Currencies treaded water in quiet summer trade today with EUR/USD finding equilibrium near the 1.2250 level as traders continued to square up ahead of the key ECB meeting this Thursday. The euro and Aussie continued to diverge with EURAUD hitting fresh lows at 1.11650 in the wake of comments by China’s Premier Wen Jiabao that he sees stabilization but does not underestimate risks posed to the country’s economy by global economic slowdown.

The Aussie rose to 1.0525 in the aftermath of his remarks on speculation that Chinese authorities may lower the RRR again in order to ease credit and stimulate demand. Later in global day the markets will get a glimpse of the official Chinese PMI data which is likely to remain in contractionary territory for 11th month in a row. The Aussie however remains unfazed by any fears of a Chinese slowdown as the currency continues to power higher on the back of positive risk flows and central bank diversification demand.

On the economic front the labor data from Europe was not good. German unemployment printed as expected, increasing by another 7K in Europe’s largest economy. This was the third month out of the past four of deteriorating labor market conditions, as the slowdown in Europe caused by the sovereign debt crisis is clearly starting to take its toll on Germany which up to now has remained relatively immune to problems in the region.

Meanwhile in Italy the unemployment rate skyrocketed to 10.8% from 10.3% eyed reaching its worst level since the series began in 2004. Worsening labor conditions across the continent indicate that the toxic combination of investor uncertainty and brutal austerity cuts by the member governments are sending the EZ further into recession as business activity and labor demand slows significantly.

In North America today, the focus turns to Chicago PMI and Consumer confidence data with market forecasts handicapping very slight declines in both readings. The day could prove to be another snoozer, as summer doldrums and lack of any fresh news could keep markets listless and rangebound until Thursday. Still if equities begin to weaken the EURUSD could drift lower with 1.2200 in view as the day progresses.

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