Draghi to face critics in Berlin
The latest UK CBI retail sales survey printed below expectations with a net balance of -8 for September, down from 9 the previous month. There was a small increase in the latest CEBR consumer confidence reading with respondents noting that they had more positive expectations of their household finances.
The UK currency was more resilient in the face of weaker oil prices. Sterling is still blighted by concerns surrounding the financial sector and EU negotiations. After reaching lows of 1.2950 the Pound fought back to break through the 1.3000 mark against the Dollar and pushed back against the Euro to break 1.1600. As we near the end of the quarter, there is a risk of another Sterling sell off, so there will be no let up on volatility.
Euro money supply data was stronger than expected with an increase in year-on-year growth to 5.1% for August from the previous 4.9%. However, the Euro was undermined by Deutsche Bank’s plight and general concerns surrounding the banking sector.
Mario Draghi will face some of his biggest critics in Berlin this afternoon at the German Parliament’s EU Committee meeting. Topics mooted for discussion include perpetually low interest rates and the bond buying program, showing that even the Germans don’t believe one size fits all. Although this will be a closed session Draghi will give a news conference around 5pm.
In the US, the flash Markit PMI services index rose to 51.9 for September from 51.0 in August, although the underlying components were generally disappointing. There was a further increase in consumer confidence to 104.1 for September from an upwardly-revised 101.8 the previous month. This was the highest reading for over nine years as confidence in the labour market has also increased in the latest survey. The data will maintain underlying confidence in employment and consumer spending trends.
The data also underpinned Dollar sentiment but the Euro found support below 1.1200 as US yields did not respond significantly, especially as there is the assumption that there will be no Federal Reserve policy move to raise rates until December. San Francisco Fed President Williams stated that there are significant differences of opinion within the Fed. He commented that the US economy can handle a rate increase and that it is becoming increasingly difficult to justify incredibly low interest rates, following Boston Fed President Rosengren’s line of argument. These are significant comments, but the currency impact will be limited unless there are gains in US yields.
Data to watch: 7am German GfK Consumer Confidence Survey (OCT). 1.30pm US Flash Durable Goods Orders (AUG). 3pm US Fed’s Chair Yellen Testifies Before House Panel. 6.30pm US Fed’s Evans speaks. 9.35pm US Fed’s Mester speaks.