The rise in risk appetite gained further supports by M&A news yesterday. Wall Street advanced despite weaker-than-expected Empire State manufacturing index with DJIA and S&P 500 climbing -1.90% and 2.18% respectively. The US dollar fell, driving commodity prices higher, as the market speculated additional easing from the Fed. Oil prices reversed losses made in Asian and early European sessions with the front-month contract for WTI crude oil soaring to a 6-day high of 88.05 before settling at 87.88, up +2.93%, while the equivalent Brent crude contract surging to 110, also the highest level in 6 days, before ending the day at 109.91, up +1.74%.
Google announced to buy Motorola Mobility for 12.5B. The deal thrilled investors as Motorola shareholders will get 40/share in cash, +63% higher than Motorola Mobility's closing price last Friday. The news readily upstaged the disappointing US economic data. The Empire State manufacturing index surprisingly fell to -7.70 in August, compared with consensus of a flat reading, from -3.76 in the prior month. The index has been in the negative territory for 3 consecutive months, suggesting manufacturing activities in New York State have been contracting. Worse still, the 6-month outlook indices deteriorated significantly with manufacturers forecasting new orders and shipments to ease to the slowest pace after September 11, 2001. Business confidence is extremely weak in the district.
The US Treasury's latest report showed that net long-term capital flows to the US fell to 3.7B in June from 24.2B in the prior month. The market had anticipated a rise to 30.1B. The sharp drop in net capital inflows was mainly driven by private foreign investors' reduction in holdings of US Treasury and corporate bonds. This suggested that private sector investors lacked confidence in US' debts. Foreign official sectors such as China, Singapore, Thailand and Mexico, however, increased their holdings of US long-term debts so as to fight against appreciation in their own currencies.
The RBA released minutes for the August meeting. Policymakers decided to leave the cash rate unchanged at 4.75% for an 8th month as 'the downside risks to demand had probably increased, as a result of the acute uncertainty in global financial markets...This in turn could weaken the outlook for demand relative to the central forecast and, over the medium term, dampen the inflation outlook'.