Risk was slightly better supported yesterday as geopolitical concerns eased surrounding Syrian tensions. A lack of support for an attack on Syria has left the US standing almost alone, there are of course still risks should the situation escalate further and that uncertainty is still being reflected in mixed markets. US equities were higher yesterday with Asian indices mixed overnight. The USD maintained its bullish stance against major counterparts but did give back some ground to emerging market currencies, nothing close to the gains made already this week however.
We mentioned earlier in the week that German data had been surprisingly strong recently, in fact we felt too strong, particularly after bumper business sentiment readings. Data released yesterday brings Germany back in line with our expectations, disappointing unemployment change figures, posting +7k versus -5k expected show the core is not invincible and a surprise fall in the annual CPI reading saw inflation fall to 1.5% from 1.7% expected.
This morning we also saw a surprise fall in German retail sales for July, down 1.4% from .6% growth expected. This has left the EUR vulnerable ahead of further key data releases this morning with the Eurozone composite CPI reading due out, the benchmark inflation reading is expected to come in at 1.4%, down from 1.6%, however with weaker readings from the core the risks of a fall towards 1% are real, and leaves the Eurozone a long way behind the ECB’s target of 2%, which would likely see increased calls for a rate cut before year end. Consumer confidence and unemployment figures are also due from the Eurozone this morning in what could well be a make or break day for the EUR.
GBP has been performing admirably since Carney’s speech in Nottingham on Wednesday, it has held its own against a strong USD and EURGBP is down some 130 pips from Wednesdays highs. The Loyds business barometer is not a release that can affect the market but the rise from 41 to 54 from July to August shows the changing attitude in the UK. Later today we have Consumer Credit, Money supply and lending figures from the UK, with increases expected in mortgage approvals and consumer credit.
The USD finished the week on a whimper last week but it is setting up to end August on a high. Data released yesterday saw Q2 GDP revision beat expectations posting growth of 2.5% from 2.2% expected, and up from the initial estimate of 1.7% fuelling speculation that September will in fact be the month the Fed begin to taper, some whispers in the market suggest we may see asset purchases scaled back by $20 bln per month. This theory was supported by further declines in jobless claims.
Today we have personal consumption and expenditure figures out as well as the Chicago PMI and the University of Michigan Confidence report. Any strong readings here will be supportive of the September taper but as always with US data it will bring volatility to US crosses.