Risk sentiment improved significantly today as stocks rallied on better than expected earnings and unexpected growth in U.S. manufacturing and construction spending. U.S. July manufacturing PMI was released at 55.5 vs. expected 54.5 and prior 56.2 while June construction spending came in at +0.1% vs. expected -0.5% and prior -0.2%. The dollar traded lower across the board highlighted by the break below the 50% retracement level (from Nov. ‘09 lows to June ‘10 highs) and 100-week SMA in the dollar index. EUR/USD rallied to highs just under the 1.3200 level and cable (GBP/USD) reached near 6-months highs trading just above 1.5900. U.S. equities showed impressive gains with the S&P 500 breaking above its 200-day SMA to rise 2.20% and the Dow Jones Industrial Average advancing by 1.99%. JPY-crosses were relatively quiet during the NY session as a lower USD/JPY kept the yen pairs subdued.
Demand for commodities improved as a result of a softer dollar with oil trading up about 3.19%. Silver (XAG/USD) gained roughly 2.00% and gold (XAU/USD) was up marginally (around +0.09%). Treasuries fell further indicating that concerns about an economic slowdown have eased for now. Fed Chairman Ben Bernanke spoke today and said that while the U.S. economy has a “considerable way to go” for a full recovery, “rising demand from households and businesses should help sustain growth”.
On the calendar for the Asia/Pacific session is New Zealand 2Q private wages and average hourly earnings, Japan’s July monetary base, and China’s July non-manufacturing PMI. Due out of Australia tonight is June retail sales, building approvals, RBA commodity price index, and the RBA’s interest rate decision.