The quarterly earning reports are still leading the markets as expected. The investors' risk appetite have moved up starting by Alcoa and Intel reports and continued with JP Morgan yesterday supporting Dow to hold most of its previous gains to end the session down by just 7 points, in spite of the weak released economic data from US while the greenback is still under the pressure of the carry trades eyeing one further positive report to come and the single currency could come over 1.29 and the cable is still keeping its creeping up pace to 1.55. The markets are curiously waiting for the rest of the earning reports of the second quarter from US and Europe to know more about the impact of the debt crisis in the Euro zone on companies performance and the financial sector after the growth slow down signs which came from US containing the market sentiment weighing negatively on the equities markets as we have seen the slide of US consumer confidence of June to 52.9 while the market was waiting for 62.9 and June US ISM manufacturing index which was expected to be 59 from 59.7 in May coming last week at 56.2. That's beside the increasing worries about the housing market performance in US which has deteriorated in May as the pending home sales have fallen by 30% while the market was waiting for decreasing by just 10% after the disappointing new home sales of May which were awaited to be 470k from 507k in April but they have shocked the market with just 300k falling by 32.7% and finally, we have returned to the losing of jobs in June by another 125k of the non-farm payroll after adding 413k in May while the market was waiting for losing just 100k and this deterioration has continued into this week with the releases of US retail sales of June which declined by .5% while the market was waiting to have a flat reading, US July Empire State Manufacturing which was forecasted to be 18.95 from 19.57 in June and it has fallen to 5.08 and also US July Philadelphia Fed Business Survey which was waited to be 11.5 from 8.0 in June and dropped to 5.1.
The markets are anxiously waiting also for the EU banking stress tests results which are expected to give clarifications about the current financial situations of the major banks in EU by the end of this month to know further from the banks itself to how far they are exposed to the unsustainable debts of the struggling small countries inside the EU and outside of it to know its right needing for further funding to sustain their financial position as the market is still worrying about this position after the ECB had announced last month that the long term debt refinancing problems in Europe highlighted the need of 800 billion euros by the end of 2012 suggesting that the European banks are in need to be ready for facing bad loans following the debt crisis which can reach 123 billion euros for 2010 and 2011 to reach 105 for 2011 and for facing the bad loans from 2007 till 2009 they should be ready with 238 billion euros.
The single currency could get over 1.29 after new succeeded Spanish auction and there is a growing believe that the worst of the debt crisis is over in the Euro area right now which is essential to the single currency to keep its gains after breaking 1.2698 this week after finding support again above 1.255 versus the greenback. Last week, the pair could gain momentum too with the breaking 1.2452 and now, the next main resistance should be at 1.3 then 1.3096 while the next major support is still at 1.255 then 1.2165 then 1.2044 and 1.1954 and 1.1875 which has become the pair main defending line before 1.16 whereas the pair has started its rally to 1.604 before falling again to 1.233 amid the credit crisis and rising back forming a lower high at 1.515 in the beginning of last December.
God willing, we are waiting today for further important inflation figures after ahead US PPI which was expected to be down monthly by .1% and up yearly by 3.2% and they came at lower rates at -.5% monthly and just 2.8% y/y while the core figures which were expected to be up by .1% m/m and 1.1% y/y came as expected .1% m/m and 1.1% y/y, as we wait today for US CPI which is expected to be flat from May monthly and up by just 1.2% y/y from 2% in May and the core excluding the food and energy to be up monthly by .1% and yearly by .9% again and also we have from US the TIC net long term transactions of May to be 73.7B$ from 83B$ in April and July University of Michigan consuming sentiment preliminary reading which is expected to be 74.0 from 76.0 in June.
Walid Salah El Din