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Markets Slip on Negative Macro Data; UK Retail Sales Released Today: Difference between revisions

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Yesterday’s Merkel-Sarkozy produced few of the expected results and now that this event risk is removed, market attention will start to focus more on macro data and potential intervention rhetoric from the Swiss and Japanese central banks as this would be one event that could re-introduce extreme volatility back into the markets.
Overnight, the Asian session saw risk assets being sold off as growth data continues to be a drag on sentiment.  Now that most of the negative headlines have been factored-in most of the attention will start to shift back to economic data releases and today we will see housing and inflation figures from the US.  Core inflation is the aspect that will have most of the market-moving potential as any weakness in price pressures will lead many to argue for the possibility of a third round of quantitative easing.  Weekly jobless claims will also be released.  The USD/JPY is up slightly at 76.50-76.70 but is still caught in a very tight monthly range while the EUR/USD is moving lower at 1.4380-1.4445.


Dow Jones reported that the Swiss government is possibly planning a press conference for today so there is potential here for some market surprises. Yesterday’s summit with the French and German leadership did not result in a plan increase to the scope of the EFSF (or the use of short term Eurobonds), so this could create more pressure for the SNB to engage in intervention measures.
The Eurozone headline CPI matched market expectations, coming in at +2.5% on a yearly basis but the core figure was much lower at +1.2% yearly.  One factor cited was the drop in Italian retail sales (specifically clothing manufacturers) during the month of July.  With this in mind, is expected that this declines in core inflation is temporary and likely to rise from +1.2% in August to +1.6% the following month.


What Sarkozy and Merkel did do is discuss a new Economic Council to oversee the European economic recovery, but they suggested that the EFSF is large enough for the time-being, and there is not enough regional integration to implement a Eurobond program.  There was also the proposal for all Eurozone nations to enact a deficit limit amendment to their respective constitutions before the end of 2012.  Most of the market disappointment stemmed from the fact that the EFSF would not be increased.
Leaders of various EU nations have started to weigh-in with comments on the Merkel-Sarkozy agreements.  Many of the finance ministers are focusing on the Greek bailout package, saying that contributions must be backed by private collateral.


The EUR/USD sold off on the news and now trades at 1.4350-1.4420 while the USD/JPY remains heavy at 76.60-76.80. Today’s main event is the release of the minutes from the last Bank of England meeting.
The Swiss National Bank remains in focus.  Yesterday the Swiss government agreed to produce aid for the industries that have been most negatively affected by the extreme exchange rate levels (exporters and tourism companies). The first order of business for the SNB is to prevent any further strength against the Euro as this has been having the biggest effect on exports.  To do this, the SNB is raising site deposit limits to 200 billion Swiss Francs (from 120 billion previously). The SNB also plans to use FX swaps so that Franc liquidity remains in a healthy state, as low liquidity levels generally lead to extreme price volatility.


In macro data, German GDP growth was much lower than expected, at +0.1% on a quarterly basis (estimates were for a rise +0.5%).  Rising imports did some damage to the net trade figures, consumption dropped and construction growth slowed during the quarter.  These factors contributed to the weaker overall figure and affected Eurozone GDP as well, which came in at 0.2% on a quarterly basis (estimates called for a rise of 0.3%). The Eurozone trade balance also missed estimates, coming in at 0.9 billion Euros.
In England, the Pound was lower after the release of the minutes from the August 4th BoE monetary policy meeting.  The minutes were interpreted as dovish, given that the two most hawkish MPC members (Weale and Dale) reversed their bias for a near term rate hike, choosing to join the seven dovish MPC members who voted to leave the base rate at 0.5%. The vote on additional asset purchases was 8-1. The dissenting MPC member (Posen) saw a need for another round of quantitative easing and others said that their opinions could change if the situation warranted.  UK jobs data was lower than expected yesterday.  The claimant count increased by 37,000, with the ILO unemployment rate rising to 7.9% (no change was expected).  Today will see the release of UK retail sales with estimates of a 0.1% rise in the yearly core figures. [http://www.spreadbetting.com financial spread betting]
 
In England, the BoE Minutes will be released today, with many expecting the release to show that the two most hawkish members reversed their bias and actually voted to keep rates on hold during the last meeting.  If this is true, it would mean that the board is now unanimous in their bias to maintain an accommodative monetary policy.  England’s CPI came in higher than estimates, at 4.4% yearly. This forced the BoE Governor (King) to explain the reasons for this in a letter to the Chancellor, but there was little in it to move markets.  UK labor figures will also be released today, as the claimant count probably increased by 20,000 with an unchanged ILO unemployment rate at 7.7%. [http://www.spreadbetting.com financial spread betting]

Latest revision as of 15:17, 18 August 2011

Overnight, the Asian session saw risk assets being sold off as growth data continues to be a drag on sentiment. Now that most of the negative headlines have been factored-in most of the attention will start to shift back to economic data releases and today we will see housing and inflation figures from the US. Core inflation is the aspect that will have most of the market-moving potential as any weakness in price pressures will lead many to argue for the possibility of a third round of quantitative easing. Weekly jobless claims will also be released. The USD/JPY is up slightly at 76.50-76.70 but is still caught in a very tight monthly range while the EUR/USD is moving lower at 1.4380-1.4445.

The Eurozone headline CPI matched market expectations, coming in at +2.5% on a yearly basis but the core figure was much lower at +1.2% yearly. One factor cited was the drop in Italian retail sales (specifically clothing manufacturers) during the month of July. With this in mind, is expected that this declines in core inflation is temporary and likely to rise from +1.2% in August to +1.6% the following month.

Leaders of various EU nations have started to weigh-in with comments on the Merkel-Sarkozy agreements. Many of the finance ministers are focusing on the Greek bailout package, saying that contributions must be backed by private collateral.

The Swiss National Bank remains in focus. Yesterday the Swiss government agreed to produce aid for the industries that have been most negatively affected by the extreme exchange rate levels (exporters and tourism companies). The first order of business for the SNB is to prevent any further strength against the Euro as this has been having the biggest effect on exports. To do this, the SNB is raising site deposit limits to 200 billion Swiss Francs (from 120 billion previously). The SNB also plans to use FX swaps so that Franc liquidity remains in a healthy state, as low liquidity levels generally lead to extreme price volatility.

In England, the Pound was lower after the release of the minutes from the August 4th BoE monetary policy meeting. The minutes were interpreted as dovish, given that the two most hawkish MPC members (Weale and Dale) reversed their bias for a near term rate hike, choosing to join the seven dovish MPC members who voted to leave the base rate at 0.5%. The vote on additional asset purchases was 8-1. The dissenting MPC member (Posen) saw a need for another round of quantitative easing and others said that their opinions could change if the situation warranted. UK jobs data was lower than expected yesterday. The claimant count increased by 37,000, with the ILO unemployment rate rising to 7.9% (no change was expected). Today will see the release of UK retail sales with estimates of a 0.1% rise in the yearly core figures. financial spread betting

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