Global economic momentum is decelerating
As we edge closer to what could be seen as one of the Fed’s most anticipated meetings of late, a cloud of bearish data released yesterday will keep investors guessing on what the Fed will do. The Fed must decide whether they should increase rates from near zero, for the first time since 2006.
Manufacturing figures showed the sector’s biggest decline since January 2014, while Industrial production also fell 0.4%. The strength of the dollar is making US products too expensive and consequently less attractive in overseas markets. Coupled with lower commodity prices, most notably oil, the inflation figure is being weighed down. Markets will look to the CPI figure being released shortly after midday today, with the figure widely expected to stay at 0.2% YoY. These factors could be key to Yellen’s decision on the rate outcome.
While the UK inflation figure remains at zero, more positive job and wage growth could offer Sterling some strength. Jobless Claims is estimated to contract for the 7th time in the last 8 months, while average weekly earnings excluding bonuses are expected to tick up to 2.9% from 2.8%. Such positive wage growth could pressure the BOE to consider normalising their current monetary policy sooner.
Versus its most traded counterparts, the Euro continued to trade within range – springing no surprises on the market yesterday. From a fundamental outlook, investors and market participants alike will be looking towards Eurozone inflation data this morning – perhaps watching a little closer now that certain highly placed members of the ECB have highlighted that low Eurozone inflation could impact the potential extension to the current quantitative easing programme – due to expire in September 2016.
Also looming in the background is an election set to take place in Greece on the 20th of September. Given that a united coalition Government has already been firmly ruled out, the results will make for interesting reading. Whilst most feel that the Euro is destined for further weakness before the turn of this year – with the current strength being somewhat of an anomaly due to negative Chinese markets – the argument has been raised that with the new Govt elect just around the corner, are the ECB and IMF likely to allow the situation to become as severe as it was only two months ago? Given how the market reacted, of course, to the detriment to the bloc currency, a slightly more accommodating approach may well be adopted.