Euroland inflates but will Nonfarms follow?
For the Eurozone yesterday, German unemployment declined a further 5,000 for August, remaining at 9.1% although there was a weaker-than-expected reading for retail sales. In terms of headline Eurozone inflation data, Neil Wilson, senior market analyst at ETX Capital, states that energy prices are driving the headline Eurozone inflation rate although the core inflation rate was unchanged and in line with forecasts at 1.2%. He pointed out that core inflation remains static which is “an annoyance for the Governing Council and one that Mario Draghi will reiterate needs to be looked past.”
Further, fresh source reports yesterday that a growing number of European Central Bank (ECB) members are concerned over Euro strength. These concerns were said to have increased the chances of a delay in making a decision on Draghi’s quantitative easing policy or a more gradual process of tapering next year.
The Euro came under renewed pressure following the reports with a decline to weekly lows just below 1.1830 against the Dollar on a fresh round of long liquidation. Against the Pound, the currency fluctuated across the day but ended up at 1.0860 at close, just slightly above where the pair began the day.
Today, there is little to no data for the Eurozone but with Non-farm payroll reports out for the Dollar, the Euro will be in the hands of Dollar sentiment.
Sterling is accelerating its daily decline this morning, dragging GBPUSD to the area of fresh session lows in the 1.2900 area whilst the Euro lies around the 1.0850 mark.
Michael Saunders, a key member of the Bank of England’s (BoE) interest rate-setting Monetary Policy Committee (MPC), has called for “a modest rise” in interest rates to curb high inflation. In a speech in Cardiff yesterday morning he said a rise would “help ensure a sustainable return of inflation to target over time”. Saunders was one of two members of the MPC to vote in favour of an interest rate rise at the Committee’s last meeting in August. He says that a “bumpy” Brexit might not be a justification for keeping interest rates at a record low and, in turn, argues that any problems with Brexit might be compensated by a weaker Pound.
The UK manufacturing PMI for August is due for release today at 9:30am and is expected to show that the pace of expansion in the activity eased last month when compared to July’s solid rebound. The index is expected to arrive at 55.0 versus 55.1 booked in July.
US jobless claims data printed 236,000; close to expectations in the latest week, maintaining expectations of a very firm labour market ahead of today’s employment report. The PCE inflation data was also in line with expectations as the annual rate edged lower to 1.4% from 1.5%, which dampened expectations of Fed tightening before year-end.
The Dollar failed to gain additional support from the data and the Euro regained ground with evidence of demand into the London fix. Overall, there was a move just above 1.1900 ahead of Nonfarm payrolls and there will be a threat of further short-term volatility on the data. There are some concerns that recent August data has failed to meet expectations and the risk that average earnings growth will suffer from an early survey period.
Data to watch:
8:55am German Markit Manufacturing PMI (August)
9:30am UK Markit Manufacturing PMI (August)
1:30pm US Nonfarm Payrolls (August), Unemployment Rate, Average Hourly Earnings, Average Weekly Hours, Labour Force Participation Rate.
2:45pm US Markit Manufacturing PMI (August)
3:00pm US ISM Prices Paid, ISM Manufacturing, Construction Spending.
6:00pm US Baker Hughes Oil Rig Count