The S&P 500 pulled back overnight to consolidate gains, closing down 0.5% at 1120.
Considering the strength in US markets towards the end of July, a small fall like this given the data was not a bad result.
Talk on US trading floors was about whether the Fed will resume further Quantitative Easing (QE) measures at next week’s FOMC meeting. There have been a number of different measures speculated on by traders as to what the Fed might look to do and certainly the economic data from the US economy suggests they have a good catalyst to do so. Overnight data showed pending home sales dropped 2.6% in June, factory orders were down 1.2% and personal income and spending was flat for the month.
With such weakness in the economy, US yields on 2-year treasuries dropped to a new record low which in turn saw the USD/JPY cross trade down to 85.31 during Asian trade. Recent comments from Japan’s finance minister Noda did little to weaken the yen; some had been hoping he would step in to help ease recent strength. The euro and sterling were also key beneficiaries from QE speculation.
The fact the yen is trading near a 15-year high is hurting the Nikkei 225 which is the weakest performer in Asia as at 05:50, down 2.1%. The Hang Seng, Shanghai Composite and Kospi are lower by 0.1%, 0.5% and 0.7% respectively.
Turning our attention to the European open and it looks like markets will start off on a negative footing. The payroll readings in the ADP survey in the US could be a good indicator ahead of Friday's main event – so that will attract some attention. Closer to home, European retail sales and services PMI in the UK could also be looked at by currency traders.
On the corporate side there are some big names due to report - Antofagasta, ENRC, Standard Chartered, part state-owned banking group Lloyds being amongst some of London's highlights, whilst Wall Street is expecting word from Time Warner and AOL before the bell, then News Corp after the close. Again some of these numbers should help offer a barometer of sentiment in many of the larger economies but we've already seen the greenback suffer amidst mounting concern over the nation's outlook and further US$ selling could hamper risk appetite across the board.
Ahead of the open we're calling the FTSE down 26 at 5370, the DAX down 17 at 6290 and the CAC down 9 at 3738.
