A rising US dollar, as well as a sharp decline in oil prices on lower global demand concerns sent global stock markets sharply lower again overnight with US markets reversing all of the gains of the previous session, as investors shifted their focus towards next week’s Federal Reserve rate meeting.
With the US central bank now in blackout period ahead of the decision next Wednesday there is little in the way of positive drivers helping underpin the market at this time, despite some better than expected Chinese economic data earlier this week.
On the plus side we won’t have to listen to the arguments over whether Fed policymakers think they should or shouldn’t raise rates when they convene to meet next week, though it is clear that despite the rebound in the US dollar over the past few days it would be a major surprise if the Fed did anything at all next week.
The pound also slid sharply yesterday after August inflation data came in a little bit weaker than expected, though why markets chose to ignore the sharp increase in input prices is somewhat of a mystery.
Given that these are a lagging indicator the sharp rise in these would suggest that the scope for easier policy from the Bank of England in the coming months is likely to be somewhat limited, if as expected these increases start to see the headline numbers edge up towards and over 1% by the end of the year.
Today’s economic data could well add further grist to the mill with respect to any potential damage that this summer’s Brexit vote has done to the UK economy with the release of the latest unemployment and wages data for July and August. So far none of the dire predictions of doom and gloom have come to pass with respect to the UK economy with economists now almost tripping over themselves in their haste to revise upwards their dire predictions in the wake of the recent rebound in UK economic data.
In July we saw jobless claims fall sharply by 8.6k confounding expectations of a 5.2k rise, and while the August numbers aren’t expected to be anywhere near as good, expectations are for a modest 1.7k rise.
In terms of wages and the broader ILO 3 month measure of unemployment the data didn’t cover the aftermath of the June vote last month, while this morning’s data will.
Given the decline in jobless claims in July this morning’s ILO unemployment number for July is likely to remain unchanged at 4.9%, and could even improve to 4.8% at a pinch, which would suggest for now little evidence of a negative spill over.
On the wages front yesterday’s CPI numbers were good news as they remained solidly below the increase in average earnings, which saw an improvement in the June numbers to 2.3%, thus maintaining the positive gap between prices and incomes. The July numbers this morning are expected to show a slight decline to 2.2%, still well above the current level of CPI and RPI.
Even so this gap is likely to narrow in the coming months which is likely to feed through into some hard choices for suppliers and retailers as we head into the end of the year, in terms of passing through the increase in import prices, or absorbing some of them to keep the tills ticking over in the lead-up to Christmas.
EURUSD – continues to hold above the support near the 1.1120 area, to argue for a move back towards 1.1400 and June highs. A move below 1.1120 retargets the low 1.1000’s.
GBPUSD – fell through the support at the 1.3230 area raising the prospect of a move towards 1.3050 and the lows 2 weeks ago. We need to see a recovery back through the 1.3300 level to argue for a retest of the highs last week.
EURGBP – saw a move through the 0.8500 level yesterday and a push up to 0.8535. We need to hold above the 0.8480 area to argue for further gains towards the 0.8600 area.
USDJPY – the line of least resistance remains towards the downside while below the 103.50 area and for a move towards the recent lows around the 99.50 area.
