European Outlook: The global stock market rally lost some momentum during the Asian session. Japanese markets still moved higher, after Wall Street posted record highs, but the Hang Seng saw profit taking as the index neared a key resistance level and developers and financial stocks came under pressure. CSI 300 and ASX 200 are posting slight gains, but U.K. and U.S. stock futures are in the red, and investors may need a catalyst before pushing things further. The European calendar has final inflation data from Germany and Spain, U.K. labour market data and Eurozone production numbers. After yesterday’s higher than expected U.K. inflation reading, U.K. wage growth in particular will be in focus as the BoE starts its 2 day meeting ahead of tomorrow’s policy announcement.
FX Update: The dollar rebound rally has lost gas, with EURUSD edging out a two-day high and the buck trading softer versus sterling, the Australian dollar, among others, although USDJPY still managed to eke out a 12-day high. The dollar had been shorted into the weekend, when concerns about the impact of Hurricane Irma and fresh ratcheting up in geopolitical tensions were at an apotheosis, and driving the rebound on Monday and Tuesday had largely been an unwinding of this positioning. This now seems to have run its course. Global stock markets seem to have seen a similar dynamic. EURUSD has recouped to the upper 1.19s after basing yesterday at a four-session low at 1.1926. Cable, which had a fire lit beneath it by yesterday’s above-forecast UK CPI data, extended to a fresh one-year peak, this time at 1.3315. USDJPY, meanwhile, clocked a 12-day high at 110.29. EURJPY posted a 20-month high at 132.01, reflective of the under-performance in the yen..
German August HICP inflation was confirmed at 1.8% y/y, in line with the preliminary number and up from 1.5% y/y in the previous month. The breakdown confirmed that a renewed pick up in energy prices was largely to blame for the uptick in the headline rate, with prices for heating out rising 10.4% y/y in August, compared to just 5.4% y/y in July and 0.9% y/y in June. Petrol price inflation equally jumped higher. Energy aside annual food price inflation as well as higher prices for clothing and shoes underpinned the uptick in the HICP rate, which leaves the German number pretty much in line with the ECB’s definition of price stability. For the Eurozone as a whole though price developments are still looking more muted and with the strong EUR adding to downward pressure on prices the ECB remains very cautious as it prepares for another reduction in monthly asset purchase volumes.
Main Macro Events Today
- UK ILO Unemployment & Average Earnings – Monthly labor data covering July and August is due today, where it is expected that the July ILO unemployment rate edging down to a 42-year low rate of 4.4% after 2.5% in June, though average household income growth is expected to remain relatively benign, at sub-inflation levels for 2.3% y/y in the three months to July, and at 2.1% y/y in the ex-bonus figure.
- EU Industrial Data – Eurozone industrial production data for July expected at 3.4%y/y from 2.6% y/y.
- US PPI and EIA Oil – Today we also have the MBA mortgage series, EIA and PPI, which is set to rebound 0.3% in August from -0.1%, while the core reading is seen up 0.2% from -0.1%. The Treasury budget gap is expected to widen to -$131.0 bln in August from -$42.9 bln.
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