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EU Bond decision kicked until October

EU Bond decision kicked until October

GBP 
UK industrial production data was in line with consensus forecasts with a 0.2% increase for July to give a 0.4% annual increase while manufacturing output rose 0.5% on the month as car output recovered strongly. There was also a slightly narrower than expected trade deficit for the month, although there was no significant reassessment of the overall UK outlook.

The NIESR (National Institute of Economic and Social Research) estimated GDP growth of 0.4% in the 3 months to August from 0.2% previously which had some impact in underpinning confidence in the outlook.

Sterling overall was able to make further headway against the Euro, to 3-week highs in the 1.0965 area while GBPUSD tested 5-week highs above 1.3200 before closing just below.

The latest data on consumer spending from Visa recorded the first positive annual reading since April with a 0.3% increase which suggested some stabilisation in demand. Tuesday’s inflation data will be watched closely ahead of Thursday’s Bank of England policy decision. Sterling was little changed against the Euro on Monday while slipping lower against the Dollar.

USD

The weekend passed without any new missile launches from North Korea and helped the US Dollar Index to stage a decent recovery from Friday’s 33-month lows. Also collaborating to the Greenback’s uptick was Saturday’s Donald Trump’s comments on speeding up efforts to overhaul the US tax code. Investors this week would look forward to Thursday’s US inflation report for fresh clues over the Fed’s ability to deliver a third rate hike this year before positioning for any additional near-term recovery for the buck.

As the Federal Open Market Committee (FOMC) meeting looms near (Sept 20), this week’s data in the US will be of crucial importance, with the inflation numbers the main event to keep an eye on. All key US inflation readings are below the Fed’s 2% medium term target, but headline inflation should push higher, thanks to rising energy costs. Gasoline prices rose 25 US cents per gallon between the beginning of July and the end of August and have continued to rise in early September. Dollar weakness is also helping to generate some price pressures, with import inflation nudging higher and PPI following suit.

Other US data this week includes retail sales, which should be fairly healthy, given the strength of consumer confidence. As for industrial production, we will be looking for early signs of hurricane Harvey effects, which impacted output in the Houston region. Any weakness is likely to be temporary though, given the ISM manufacturing index is at very strong levels and the rise in the oil price should help stimulate shale oil output.

EUR

With the ECB deferring the decision on Bond purchasing until October, and no data releases scheduled that could change the outlook decisively, this should be a relatively quiet week, leaving markets to focus on geopolitics.

According to sources, the ECB is considering 4 potential scenarios for quantitative easing next year with agreement that the next step should be to reduce stimulus with the broadest possible consensus. Two of the options were to cut bond purchases to EUR 40bn or EUR 20bn per month while there could be extensions of purchases for 6 or 9 months. The comments overall triggered a limited Euro correction weaker.

Data To Watch

01:15pm CAD Housing Starts s.a (YoY) (Aug)

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