Other Developments That Shouldn’t Be Lost In Focus On ECB

The ECB is clearly the driver of the day, spurring a quick drubbing of the euro, pressing bond yields lower and giving a fillip to equities. The lower US yields and unwind of long euro cross positions pushed the greenback below JPY120, though it has resurfaced above there. There is scope for the dollar to rise back toward JPY120.50-70.  

Meanwhile, despite a larger build in US crude oil stocks than expected and Obama seemingly securing Senate support for the agreement with Iran, oil prices have rebound by around 3%.  This, coupled with news that Canada’s July trade deficit was half the size that consensus forecast, has sparked a Canadian dollar rally.  After approaching CAD1.33 earlier, the US dollar has been pushed below CAD1.3150, where the 20-day moving average is to be found. A break of CAD1.3120 could spark another big figure decline (toward CAD1.30). Canada, like the US, reports the latest employment figures tomorrow.  

The US July trade deficit was largely in line with expectations, just below $42 bln. It is the smallest deficit since February, though the April-June deficits were revised slightly larger.  This may offset the some impact of the stronger inventory and consumption data for revisions of Q2 GDP.  Nevertheless, the smaller July deficit, which in real terms was $56.2 bln down from $59 bln in June, may prompt a small upward revision in the nowcasting of Q3 GDP. US non-manufacturing ISM was better than expected at 59.0 compared with consensus of 58.2  It was a little below the 60.3

Imports fell 1.1% or $2.5 bln. This was the result of two sectors.  Pharmaceutical imports fell by $1.47 bln. They are volatile, and this is likely simply noise. Cell phone imports fell by $1.25 and this is likely related to the anticipation of a new product cycle.  

Exports rose 0.4% to $188.5 bln. This is off form the record high set last October just below $198 bln last October. While it is popular to attribute this decline to the strength of the dollar, slower world demand may offer a more robust explanation.