Price Consolidation Ahead of Stress Test; US Inflation and Manufacturing Next

by Patrik Urban

Jul 15, 2011 13:18

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,

industrial data.

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

stalemate.

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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