Traders have reverted to risk seeking mode this morning after better than expected European economic data and earnings from companies like Caterpillar. Manufacturing and service sector activity in the Eurozone expanded while industrial new orders grew at a brisk pace. U.K. retail sales also rose 0.7 percent. However positive surprises in Europe was met with weaker data this side of the Atlantic.
Despite an improvement in continuing claims, weekly jobless claims rose 37k last week to 464k. Seasonal factory order shutdowns as well persistent weakness in the labor market prevented claims from falling. For the second month in a row, demand for existing homes also decreased. In June, sales fell 5.1 percent which was less than the market anticipated but still a larger decline than the previous month. The number of units sold dropped to 5.37 million.
The dollar received a boost because the data was not nearly as bad as everyone had feared and because the median price of a home sold rose 1.0 percent. Leading indicators also beat expectations, falling only 0.2 percent compared to a -0.3 percent forecast. With equities up sharply today, very weak numbers were needed to hold USD/JPY back.
Canadian Consumers Continue to Cut Spending
Up North, Canadian retail sales fell 0.2 percent while spending ex autos fell 0.1 percent in May due to lower gas prices, demand for building materials, electronics and cars. The market was hoping for consumer spending to rebound after a particularly soft April but unfortunately consumers continue to reduce spending despite the improvements in the labor market. The retail sales report will be extremely disconcerting for the Bank of Canada and reinforce their lower growth forecasts. If consumption fails to recover in June and July, the BoC will most likely pass on raising rates in September.
For the next 24 hours, the markets' focus will shift to the EU Stress Test results. Bernanke delivered the same testimony to the House as he did to the Senate yesterday and the question and answer session is not expected to reveal any surprises.
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