Yesterday’s sharp declines in commodity prices eventually took their toll on US markets after European markets had closed last night, rolling over into the close and heading back towards their lowest levels in the last two weeks, with the biotech sector also performing poorly, after a tweet from Hillary Clinton about price gouging on Epipens reminded traders of previous pledges to tackle the practice in the sector.
Oil prices in particular continue to get whipped this way and that on chatter about potential production freezes on the one hand and rising inventories on the other. Over the past two days we’ve seen big builds on API and EIA inventories as well as a comment from the Iranian oil ministry that they may not make a decision on attending next month’s Algiers event until the day before. As far as signalling goes that doesn’t send a particularly strong message that the Iranians are particularly concerned about underpinning the oil price at this point in time.
This suggests that the chess match between the markets and OPEC is likely to continue with respect to the ideal level for the oil price.
As a result markets here in Europe look set to open lower this morning, and it’s quite likely that trading could well be quite light given this week’s almost laser like focus on tomorrow’s event in Jackson Hole, and Fed chief Janet Yellen’s speech, which is likely to turn out to be one great big anti-climax.
Based on some of the most recent data while German GDP growth may have slowed slightly in Q2, there is little evidence that Q3 is likely to be any worse, with the latest PMI’s showing fairly decent levels of economic activity, even if the recent ZEW survey didn’t exactly show that confidence was high.
In the wake of the recent Brexit vote the German IFO survey posted a slightly negative reaction in the aftermath but it was a fairly tempered one. The latest August survey is expected to show an improvement on July, rising from 108.3 to 108.5, slightly below the June reading of 108.7.
Yesterday’s GDP numbers showed that the UK was and is an important export destination for German businesses so the performance of the UK economy since the vote two months ago and in the coming weeks will be of particular performance for German businesses.
Based on some of the recent data the outlook remains positive, not only for the UK but Germany as well, and today’s UK CBI retail sales numbers for August, will it is hoped point to a continued improvement after the sharp fall seen in July to -14, with an improvement to 0 expected.
The performance of the pound in the past few days has been a testament to the recent improvement in UK data with the currency posting its first consecutive run of three day gains since early July.
As we look ahead to tomorrow’s Jackson Hole symposium attention will inevitably turn to the state of the US economy again this afternoon and in particular the US consumer.
We get the latest durable goods numbers for July later today and this is one area where the data has been spectacularly disappointing over the past two years. There has been very little appetite in these numbers for US consumers to splash out on bigger ticket items, with the core numbers showing a negative reading year to date of -0.8%.
This has been one of the weak spots in US data this year, along with manufacturing, and something that US policymakers will only be too aware of as we head towards the US elections in Q4.
Expectations for durable goods for July are for a rise of 0.4%, up from a 0.4% decline in June.
Weekly jobless claims are expected to come in at 265k, up slightly from 262k last week
EURUSD – the risk remains for a move back towards 1.1400 and the June highs while above the 1.1250 level. It seems likely that we will continue to remain range bound with only a move below the 1.1200 area arguing for a move back towards 1.1120.
GBPUSD – the pound has managed to extend beyond its 1.3200 target, and could well extend further towards 1.3500. We need to push through 1.3300 first and some trend line resistance there. Support should come in around the 1.3020 area, with the previous lows at 1.2860 below that.
EURGBP – continues to look soft breaking below the 0.8610 area which suggests we could well see a deeper push towards the 0.8490 area. A move back through the 0.8620 area could see a return to 0.8700.
USDJPY – the US dollar needs to see a move back through the 101.30 level to stabilise and mitigate the risk of a move towards the recent lows at 98.95 the main focus. The risk remains skewed for a move through these lows at 98.90, and potentially lower towards 95.00, and levels last seen in June 2013.
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