Markets Slip on Negative Macro Data; UK Retail Sales Released Today
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.