In what came as little surprise after revisions had been plumetting siicne the last blow U.S. trade number US Q2 annualized GDP came at 1.6%. This was slightly higher than the revised consensus of 1.4%.

Thr revision was 0.8% lower than the last estimate. We anticipate when the final revision comes in it will be stradding 1% growth. Importantly this is a stimulus ladden Q2. Negative Q3 growth is the overriding issue.



S&P futures popped 6 handles on the news and oil 60 cents. On the real positive beta end AUD/JPY popped 70 pips. Who said this market wasn't tightly wound?

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Germany continues to power on taking full advantage of the weak euro. The weak euro fueled German exports, as did a more optimistic German consumer spending money. Germany’s economy experienced record expansion of 2.2 percent in the second quarter. What is significant is the expansion was achieved on the domestic and export side. Germany is Europe's largest economy and augers well for Europe as a whole.

The record GDP was the sharpest rise in quarterly growth since Germany reunified. Pleasing for analysts citing the effect as a one off because of Euro trading down to 119 in the quarter was German consumer spending growing for the first time in a year. Private consumption rose by 0.6 percent in the second quarter. This should give the basis for a strong third quarter. DIHK Chambers of Industry and Commerce has forecast Germany’s economy to grow by 3.4 percent in 2010.

The European debt crisis though is still omnipresent because of the PIIGS debt problems.
German Economy Minister Rainer Bruederle said 'The recovery has reached the full breadth of the German economy.' Said. This follows comments last week that German is to experience a 'XL-upswing'.

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The US dollar continues to be sold off against the Japanese Yen. The Dollar Yen traded to a low of 84.34 yen earlier. Euro Yen also sold off down to a nine-year low of 106.14 yen. Japan’s government attempted vocal intervention with Finance Minister Yoshihiko Noda announcing he was watching the foreign exchange market. He did use stronger rhetoric but not enough to scare the market. He refused to speak about currency intervention.

The foreign exchange market is notorious to force the envelope. It is expected they will continue to buy yen to press Japanese authorities to intervene. The next level is 80 against the dollar and 100 against the Euro for speculators to aim for. Prime Minister Naoto Kan also voiced his concerns fully aware of Japan’s reliance on the Yen for exports. The Yen has been on a tear since the U.S. announced jobless claims of 500,000 last week. In 2010 the Yen has gained almost ten percent.

The most likely official Japanese measures would be further monetary easing though that is limited also given Japan’s low rates. The next Bank of Japan's scheduled meeting is Sept. 6-7. However if the Nikkei Dow continues to slide with a strong yen they may act before.

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Baker Hughes weekly rig report showed that the number of rigs drilling for natural gas in the United States declined to 985. This is a drop of seven after hitting an 18-month high only last week. Last week’s high was the most number of natural gas rigs since February 2009 when there were 1018 rigs drilling for natural gas.

There continues to be activity in the shale drilling rigs. When extracting natural gas from shale horizontal rigs are employed. The number of horizontal drilling rigs reached a record high for a third straight week, climbing 10 to 895 according to Baker Hughes. Natural gas prices approach a monthly low in the Henry Hub futres contract around 4.12 btu on NYMEX today.

From the B.A.D Desk


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The U.S. Treasury Department capital report for June showed China reduced its U.S. treasury holdings. China, who is the largest holder of U.S. securities, sold its holdings down $24 billion to $843.7 billion. This was the second straight month China reduced its U.S. Treasury holdings.

China continues to diversify its foreign exchange reserves. China has been selling U.S. Treasuries and buying Japanese and European debt instruments. The Chinese sales meant that America recorded a net capital outflow in June for the first time in five months.

Foreigners dumped a net $6.7 billion in U.S. securities in June. The selling included short-term instruments such as Treasury bills. This reversed foreigners buying $17.1 billion in May. Foreigners did however increase purchases of long-term securities. These purchases increased in June buying a net $44.4 billion compared to $35.3 billion in May. Foreigners were net sellers of U.S. corporate debt and equities for the second straight month.

The U.S. continues on the path of being the world pauper with net purchases of U.S. Treasury debt rising by about $18.3 billion to $33.2 billion. One wonders is this a tend as China reduces it's U.S. treasury holdings.

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