Better-than-expected earnings from technology stocks continued to underpin gains across U.S equities overnight, while persistent weakness from economic data kept the upside contained, with U.S equities finishing the day with moderate gains. U.S home sales, leading indicators, and Philadelphia Fed manufacturing index all failed to meet expectations, while weekly jobless claims also rose in excess of forecasts. Nevertheless, persistent weakness across economic data points has – in part – reinforced expectations the Federal Reserve will embark on further easing initiatives, namely a third round of quantitative easing. This has intermittently served as a negative directive for the greenback and promoted strength across high-beta currencies with the Aussie dollar a prime beneficiary.
Earlier, European stocks were able to muster strength despite persistent worries about the health of southern European economies, with Spain still in the firing line. Spanish 10-year borrowing cost pushed back above the 7 percent region after a sale of longer dated debt showed lackluster demand, while the yield demanded for a sale of 5-year debt surged to a euro-era high of 6.459 percent, from 6.05 percent in June. The growing disparity between the periphery and the heart of the Euro-zone was made particularly apparent after a sale of French debt of comparable maturity demanded 0.86 percent at auction. Increased funding costs in Spain remains a primary point of contention across global markets, with a benchmark yield around the 7 percent region considered the ‘bailout zone’ which marked the subsequent request for aid from Ireland, Portugal and Greece. While Spain has sought assistance for its ailing banking sector, the additional risk premium demanded for Spanish debt suggests an inability to break the negative feedback loop between the struggling banking sector and the sovereign itself. Positive news from the region overnight came as German Parliament approved Spain’s banking bailout, although this was largely anticipated.
Although we’ve seen relative calm in the region, these underlying concerns continue to manifest in the Euro, with the shared currency remaining out of favor against its risk counterparts. After peaking above the 1.23 region in early European trade, the Euro resumed its descent before bottoming-out at 1.2228. The Australian dollar continued its record-breaking run against the Euro, with the EURAUD pair falling to fresh Euro-era lows of 117.41, while EURGBP forged new multi-year lows. The Australian dollar led the risk currency charge higher against the greenback with price action making a break through 104-figure to highs of 104.45, represent six-week highs. Regional economic data today includes second quarter Import and Export price index, business sentiment survey from China and New Zealand credit card spending.