U.S. Dallas Fed manufacturing index surged to -1.3

July 26, 2016

European Outlook: Asian shares were very mixed with the Japanese Nikkei 225 leading the way closing down -1.43% (237.25) at 16, 383 as the YEN strengthened; USDJPY to 104.41. Conversely the Hang Seng and mainland China posted robust gains. Oil also continued its weakness and added to losses, bottoming so far at $43.09, down 2.3%, or $1.10/bbl and below the 100 DMA. The EIA reported gasoline inventories well above average levels for this time of year, while overall U.S. crude stockpiles are near record highs as well. Baker-Hughes has reported an increase in functioning U.S. oil wells in seven of the past eight reporting weeks, weighing on crude prices, as U.S. production may again be in the process of ramping up production. Gold also weakened to the key 1320 level

Mixed messages from Japan: late yesterday there was expectation that the stimulus package expected on Friday was going to be significant; Japan stimulus package will double planned spending to JPY6 tln, according to sources citing the Nikkei News. The Nikkei website is also featuring a story that the Japanese government will make $1.88 bln in low-interest dollar funding available to domestic banks for overseas investment projects involving Japanese companies. Then later today Mr Aso the Finance Minister clearly stated that policy measures were the responsibility of the BOJ and that no decision had been taken on the size of the stimulus package. The USDJPY gyrated from over 105.90 to the current low of 104.40.

US Market Reports: U.S. Dallas Fed manufacturing index surged to -1.3 in July, much better than expected, after inching up to -18.3 in June from -20.8 in May. It’s the highest reading since December 2014. The index was as low as -34.6 in January, which was the worst since the -37.5 in April 2009 and compares to the record low of 59.5 in February 2009. The region has been hit hard by the oil sector recession, but this report and other measures suggest the stability in oil is helping the region recover, albeit slowly. Meanwhile, the components were mixed. The July employment index improved to -2.6 from June’s post-recession low of -11.5, but remains in negative (contractionary) territory, where it’s been all year. Wages faltered to 10.5 from 21.6. New orders rose to -8.0 from -14.2. Prices paid fell to 7.6 from 12.6, with prices received at -5.7 from -5.2. The 6-month outlook index climbed to 18.4 from 2.6, with employment at 18.8 from 12.2.

UK Business confidence falls steeply: A sharp dive in UK business confidence seen in the July UK CBI industrial trends survey, with the optimism component falling to a reading of -47 from -5 at the previous measure in April. This was the sharpest drop in business spirits since the dog days of 2009. The headline total orders figure fell to -4 from -1, while export orders dove to -22 from -14. The CBI said that there are signs of improving exports in light of the 10%-plus decline in the pound over the last month, but conceded that “it’s clear that a cloud of uncertainty is hovering over industry, post-Brexit. We see this in weak expectations for new orders, a sharp fall in optimism and a scaling back of investment plans.” Sterling took a knock on the report, though has so far remained well within the range seen on Friday in the cases against the G3 currencies.

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