Australia: The AUD has continued to benefit from the weakness of the USD and has been firm in light of the frustration financial markets are feeling with no agreement having yet been reached by Republicans and Democrats.

[Kick off your day with Global Markets Daily]

With USD87b of US government debt becoming due by August 4 and a further USD410b by the end of August, markets are getting more and more nervous. Equity markets however continued their firm tone with all major European indices advancing on Friday and Wall Street continuing its recent bullish tone due to better than expected earnings results for Q2. The Dow turned down by 0.3% on Friday to
12,681 due mainly to disappointing Q2 results from Caterpillar that saw its share price fall almost 6% on the day.

The S&P 500 managed a small gain of 0.1% while continued good results from the tech side saw the NASDAQ up by 0.9%. Oil and gold both finished higher in light of the weaker USD. Today we will see the release of the producer price index for Q2 which will give us a good indication of the likely CPI figure for Q2 that is due Wednesday. Most analysts are predicting a rise of 0.4% qoq and 3% yoy for PPI. At this stage, the market is looking at a CPI figure for the quarter of 0.6% to 0.8% qoq.

Majors: Just as financial markets were lurching forward or backward when the Greek debt crisis was the focus of everyone’s attention over the last several months, the US debt situation will now dominate the news in the next eight days. S&P has said there is a 50% chance they will downgrade the AAA rating they currently place on US government debt in the next three months. They as well as the financial markets are looking for a long term credible debt reduction program in the USD.

The EUR remains firm against the USD trading just under 1.4400. All major AUD cross rates remain at high levels except for NZD which continues to maintain its strength trading over 86 cents to the USD. Later this week we will get a read on US Q2 GDP which some analysts believe may only rise by an anemic 1%.

Economic Calendar
AUST Producer Price Index Q2
RBA’s Edey speaks in Darwin “Geared for Growth”
EU Bank of Portugal Governor & Finance Minister Speak
US Chicago Fed national Activity Index JUN

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