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European Outlook: Stock markets started to stabilise late Wednesday, and GER30 and CAC 40 managed to regain losses and close higher, Wall Street also posted gains at the close and Asian markets are currently narrowly mixed, with the Nikkei up 0.15%, despite a stronger Yen. North Korea concerns continue to weigh on sentiment, but news of a U.S. deal on the debt ceiling that ensures funding amid persistent geopolitical tensions and ongoing Hurricane threats has helped to calm nerves and FTSE 100 futures are up, although U.S. futures are already heading south. In the Eurozone the focus will be firmly on the ECB meeting, with a Bloomberg source story confirming yesterday that while officials will discuss policy options for 2018 today, a decision is unlikely to come before October, which is pretty much the consensus view. The Swedish Riksbank is also expected to keep key rates unchanged today. The calendar also has German production data at the start of the session, as well as the second and detailed reading of Eurozone Q2 GDP and U.K. house price data from the Halifax.

Germany: German production stagnated in July, against expectations for a rebound from the dip in June that was revised down to -1.1% m/m. Excluding contraction production declined -0.1% m/m and the three months trend rate slowed to 1.0% in July, from 1.8% in the three months to June. Coming after the weaker than expected orders number yesterday the numbers cast a shadow over the German growth projections for Q2, even if confidence data suggest a rebound with August numbers.

CanadaStrong growth prompted the BoC to increase rates another 25 basis points in September, leaving the overnight rate target at 1.00%. The back to back rate boosts in July and September cement an aggressive approach to removing policy stimulus as the expansion broadens and becomes increasingly self-sustaining. Downside risks remain, notably on the global stage, but the base-case scenario for growth and inflation points to a determined path upward for the Bank’s rate target, with further hikes seen in October and December. The BoC’s aggressive decision to hike rates 25 bps to 1.00% jolted the markets.

US Reports: a strong services ISM outcome, which bounced to 55.3 from an 11-month low of 53.9 in July but a higher 57.4 in June and 56.9 in May, versus a 16-month high of 57.6 in February. U.S. ISM non-manufacturing index bounced 1.4 points to 55.3 in August after falling 3.5 points to 53.9 in July. This was the best since June’s 57.4, just off the 57.6 print from February which was the best since the 58.1 reading from October 2015. Meanwhile, U.S. Markit final August services PMI rose 1.3 points to 56.0 after edging up 0.5 points to 54.7 in July (and it compares to the 56.9 preliminary August print). It was 51.0 a year ago. This is the best reading since November 2015. Overall a solid report.

Main Macro Events Today                

  • ECB Conference – The September meeting will bring updated set of staff projections but likely no change in policy setting. After strong survey data over the summer, the short term growth forecast could well be upgraded, but with EURUSD turning out to be much stronger than assumed in the June projections the strong currency will leave its mark on the inflation forecast. Forex and bond markets remain very sensitive to tapering speculation and that will likely see the ECB moving extremely carefully going ahead especially as geopolitical risks have picked up further. Indeed, that the ECB will lay out a full schedule for the phasing out of asset purchases this year seems increasingly unlikely and while officials still start to debate changes to policy parameters at the September meeting, a decision is unlikely to come before October.
  • ECB Rate Decision & GDP- Prior ECB Conference Rate and GDP will be released which both expected unchanged, at 0.00% and 0.6% respectively.
  • US Jobless Claims- Revised Q2 productivity should  post 241K  from 236K last week, and unit labor costs should show productivity bumped up to a 1.3% clip from 0.9% previously, while unit Labor Costs should be nudged down to a 0.2% pace from 0.6%.

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Andria Pichidi

Market Analyst


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