Sentiment remains upbeat, if not a little subdued as thin summer conditions kicked in. US and European equities rose overnight while 10 year US Treasury yields moved back above 2.5% and the USD continued its grind higher, especially versus JPY ahead of looming Japanese Upper House elections this weekend. A combination of the ongoing impact of Fed Chairman Bernanke’s testimonies to Congress (note he added a little more to his dovish spin in the Q&A session to the Senate Banking Committee yesterday calling tighter financial conditions “unwelcome”), firmer US Q2 earning and positive economic data surprises, have shored up confidence.
This was reinforced by the decision by Moody’s ratings agency to raise the outlook on the US AAA rating from negative to stable. On the earnings front US banks in particular have beaten forecasts while in contrast tech heavyweights disappointed after the close last night, suggesting that sentiment may weaken in today’s session. Additionally news that the US city of Detroit filed for bankruptcy will act to partly counterbalance the positive ratings news. In Europe, firmer UK retail sales and a strong Spanish debt auction boosted sentiment. There is little on the data front today, suggesting a generally flat end to the week.
Against the background of a move higher in US yields and a firmer USD especially versus JPY, Asian currencies generally remain on the back foot, with losses registered overnight. India’s attempts to stem the drop in the INR are having a diminishing impact on the currency, with USD/INR edging back towards the key 60 level. The good news is that capital outflows from the region have been stemmed, with month to date equity inflows of $311 registered. However, this belies the fact that India, Indonesia and to a lesser extent South Korea continue to register outflows.