Markets Steady As The Week Started, CFTC Data Showed Jumps In Euro Net

Markets opened the week in rather steady way with Asian equities mildly higher. Major currency pairs and crosses are generally stuck in a tight range. New Zealand trade deficit was a disappointment to economists but reaction was muted. NZ posted a deficit of NZD 774m in July versus expectation of NZD 16m. That's the biggest deficit in 10 months, as well as the worst July figure since 2008. Imports rose 17% YOY to NZD 4.62b, much higher than expectation of NZD 3.95b. Exports fell nearly 5% to NZD 3.85b versus expectation of NZD 3..92b. Also released in Asian session, Japan corporate services price index rose 0.4% YOY in July, inline with expectation. European calendar in empty today, also with UK in bank holiday. US durable goods orders will be the main focus later today.

In the Jackson Hole Symposium, two academics said in a paper that Fed should reduce purchase of treasuries rather than MBS in tapering the asset purchase program. The author of the paper titled "The Ins and Outs of LSAPs" were. Arvind Krishnamurthy of Northwestern University and Annette Vissing-Jorgensen of University of California, Berkeley. LSAPs means "large scale asset purchases". They proposed for the Fed to reduce the $45billion per month treasury purchase to zero and then sell treasuries. Meanwhile, they suggested that the Fed continue the $40billion per month MBS purchase. That's different from the Fed's idea of lowering the overall $85billion asset purchase to zero by middle of 2014. On the sideline, a few officials also commented on the tapering issue. Atlanta Fed Lockhart said he's supportive of tapering in September as long as the incoming data confirmed the economic path. St Louis Fed Bullard, though, said there is no need to hurry as the fed can be very deliberate in the decision-making.

ECB governing council member Demetriades said that a rate cut is "still on the cards" and such possibility shouldn't be ruled out. He noted that recent data has been encouraging but "it's too early to be sure" of a recovery. Meanwhile, as Bank of Cyprus head, he noted that the country has shown "considerable improvement" after the bailout secured in March and the situation is stabilizing. His comments were in contrast to that of another ECB governing council member Nowotny. Nowotny noted that there is no argument now for a rate cut. IMF chief Lagarde said ECB still has "room to maneuver". She acknowledged that recent data, in particular from Germany, are encouraging. But Eurozone is not out of the woods yet.

BoJ governor Kuroda said, at the Jackson Hole symposium, that the central bank's policy, "has already started to exert its intended effects". He noted improvement in the job market and pickup in business investments. Also, Kuroda said that inflation expectations appeared to be rising as well. Meanwhile, he also defended that BoJ's policy is completely justified and there was no increased risk in financial systems stability. And, he emphasized that monetary easing won't necessarily lead to cross-border capital outflows.

Latest CFTC data showed further improvement in the euro net positions on August 20 comparing to the prior week. Positions were relatively steady elsewhere. The euro net long rose for the sixth week to 36.7k contracts, up from 16.1k. It also just missed 2013 high at 37.6k made back on February. The yen net shorts dropped slightly to -71.7k, from -74.4k. Sterling net shorts dropped slightly to -39.5k, from -46.5k. The Australian dollar net short was relatively unchanged at -63.2k. The Canadian dollar net short was relatively unchanged at -9.5k.