Risk Markets Recover, ECB Draghi Awaited

Risk markets are mildly higher in Asian session, trying to recover from this week's sharp losses, but momentum is so far weak. There were talks that the dismal home sales data released from US overnight raised the chance of additional stimulus from Fed. Meanwhile, Euro also stabilized on outspoken ECB governing council member Nowotny's push for giving ESM a banking license. Strong support was also seen in Spanish bonds and the benchmark 10 year yield pulled back from record high of 7.751% and settled at 7.376%. EUR/USD is trying to form a base above 1.2 psychological level and could consolidate for a while. But the common currency is still vulnerable to another selloff should Spanish yield climbs again.

It should be noted that Nowotny's idea of giving ESM a banking license, thus allowing to tap into ECB funding and boost the firepower, is not new. Such idea has indeed been persistently rejected by some ECB officials before. And, it will face strong opposition from Germany, and there are legal questions to be solved. Also, some analysts noted that the outspoken Nowotny's comments don't always reflect those of the board of ECB. A main focus today is ECB president Draghi's comments and Euro could be back under pressure again should Draghi pour cold water on the ESM banking license idea again.

RBNZ left the official cash rate unchanged at 2.50% today as widely expected. In the accompanying statement, governor Bollard noted that the overall outlook is consistent with the June Monetary Policy Statement. RBNZ noted "limited risk" that conditions in Eurozone could deteriorate significantly and will continue to monitor the situation. Domestically, economic activities are expected to grow modestly over the next few years as fiscal consolidation and exchange rate are "constraining demand growth". Inflation is expected to settle near to mid-point of target range over the medium term.

On the data front, Japan CSPI dropped -0.3% yoy in June. German Gfk consumer sentiment and Eurozone M3 will be released in European session today. From US, the volatile durable goods orders are expected to grow 0.4% in June with ex-transport orders flat. Initial jobless claims are expected to remain elevated at 380k. Pending home sales are expected to rise 0.9% mom in June.