Focus shifts to the US and Europe as little impact of Chinese revaluation realised

The improvement in yesterday’s Ifo business climate survey contained mixed sentiment from retailers and executives. The survey stated that optimism among retailers declined in July, partly on concern about the Christian Democratic Union’s proposals.

The CDU, which leads Chancellor Gerhard Schroeder’s Social Democratic Party in national polls ahead of September’s election, says it will use revenue from VAT to cut employers ‘ wage burdens and boost employment prospects.

This was also reflected in a decline in consumer confidence in Germany’s Gfk index for a 4th month as unemployment stayed close to a record high.

German consumers’ pessimism however, is at odds with more positive economic data in recent weeks. Optimism among German execs unexpectedly rose to a 5-month high in July, Ifo said yesterday, as the euro’s 11% decline against the dollar in 2005 boosts prospects for exporters.

The yield on Germany’s 10-year bonds yesterday rose the most since July 14 from the German figures and improved business sentiment in Italy. European bonds may fall after a survey showed business confidence in France rose more than forecast to a 4-month high (from 99 to 101, forecast was for 100).

Over is Asia, speculative interpretation ceased as the realisation ensued that the revaluation has had a little impact economically…at least not until the next move.

In Japan, bonds fell, pushing 10-year yields to their highest in a month after Reuters reported that some central bank members expected deflation to end this year. The BOJ kept interest rates almost at zero and maintained the pace at which it pumps cash into the world’s 2nd largest economy as it struggles to overcome deflation of more than 7 years.

Yesterday’s CBI figure from the UK came in at +6, the first positive output balance since April (from -5). However, in quarterly terms, output balance remained negative at -1 in the three months compared with -10 in April. CBI’s Ian Mc Cafferty said that the weak quarterly results would“reinforce the case for a cut in interest rates on August 4”.

Stateside, consumer confidence slipped to 103.2 in July from 106.2 in the prior month. During the first 6 months of 2005, consumer confidence averaged 103.2 so there’s very little change. US 10-year treasuries may rise in Europe on expectations that durable goods orders fell in June for the first time in three months.

Orders probably fell because of fewer bookings for Boeing Co. aircraft. Excluding transportation equipment, a volatile category swayed by aircraft, orders probably rose by the most this year. The Commerce Department is due to release figures at 08.30am in Washington (1.30 BST).

Demand may also increase for 10-year treasuries pending a release on Friday at 1.30pm BST of Q2 GDP for the US, that is forecast to show economic growth was slower in Q2 compared to Q1.

Look out for New Homes sales from the US out at 3.00pm BST and the Beige Book at 7.00pm BST.

A a quick glance at commodities, gold headed for a 1-week low as a stronger dollar made the precious metal more expensive for buyers using other currencies. Crude oil fell in New York for the first day in four on speculation that an Energy Department report today will show US inventories of distillates, including heating oil and diesel, rose for a tenth straight week. Futures touched $62.10 a barrel on July 7, the highest for the contract nearest expiration since trading began in 1983.