Price Consolidation Ahead of Stress Test; US Inflation and Manufacturing Next
USD is slightly weaker since London open. S&P placed the US rating on
negative watch. Euro zone trade balance narrowed. Focus turns to
European Bank Stress test and later to US inflation, manufacturing,
USD is on the weaker side after S&P placed the US credit rating on
negative watch. S&P stated that there is a 50% chance of US losing its
AAA rating within 90 days. The rating agency noted that the risk of
default is still small but it is increasing due to political
On the data front, Euro zone trade balance has narrowed to EUR -0.6
bln from previous EUR -2.5 bln. Italian Trade deficit also came out
narrower than expected at EUR -2.41 bln from previous EUR -2.5 bln.
A significant risk factor today is the release of the results of
European bank stress test. Results should be published in early NY
afternoon (expected at 16:00 GMT). As previously noted, 26 out of 91
banks are expected to fail the test.
New York session is filled with news announcements today. June CPI is
expected to turn negative and print -0.1% (3.6% y/y). Core is expected
to increase by 0.2% (1.6% y/y). The Empire State Manufacturing index
is expected to recover to 4.5 from previous drop to -7.8. The
Industrial production is also expected to improve to 0.4% from 0.1%.
UoM Consumer Sentiment Index is due at 9:55 am ET and it is expected
to improve to 72.5 from previous fall to 71.5.
As we learned from Bernankes testimony on Wednesday, the FED is
concerned about slowing economy and reemergence of deflation. Negative
CPI print and disappointing manufacturing activity would increase the
likelihood of protracted slowdown and the need for an additional QE.
At the same time, Ben Bernanke on Thursday said that at this point the
Fed was not ready to pursue QE3.
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