The last couple of days has seen equity markets struggling for direction on the back of further weakness in commodity prices, which in turn is heightening concerns about global deflation, along with the health of the Chinese economy. The continued rise in the US dollar isn’t helping either in that it is aiding in tightening the deflationary vice. Despite the Chinese central bank easing monetary policy six times in the last twelve months there remains little evidence that these relaxations of policy are showing in the latest economic data. At the weekend the latest trade data showed an 18.8% slump in imports for October, the 12th monthly decline in a row, which in turn helped lower expectations surrounding this morning’s October industrial production and retail sales data reports. Industrial production for October came in at 5.6%, down from 5.7% in September, while retail sales came in at 11%, their best level this year, but even this is still a little disappointing. At the beginning of October there had been some stories that Chinese Golden Week had seen Chinese consumers out in droves spending over a trillion yuan in restaurants, cinemas and bars, while millions of other Chinese decided to either leave the country or travel far and wide. We already know that gaming revenues declined in October after the Macau Gaming Bureau released data showing that gross gaming revenue dropped 28.4% from a year ago, but even without that the expectation should have been for retail sales to experience a significant increase. After all who can forget the images of that giant traffic jam on the 50 lane motorway last month on the outskirts of Beijing as millions of people returned from their week long break? Yet according to official data retail sales for October only rose 11%, which was only slightly up from September’s 10.9%, which is a little disappointing when you consider the various stories surrounding last month’s holiday week. Less than a week on from last Thursday’s surprisingly dovish Bank of England inflation report, MPC officials will no doubt be hoping that today’s unemployment and wages data don’t make their assessment of the UK economic outlook out of date already. At his press conference last week Bank of England Governor Mark Carney cautioned about the risks that a China slowdown might create ripples in the UK economy, through our exposure to Europe, at the same time downplaying the prospect that rates might rise much before the middle of next year. His dovish outlook stands in complete contrast to that of the Federal Reserve who, despite wage growth much lower than the UK, stands ready to pull rates higher for the first time in nine years, at next months Fed meeting. While that may have more to do with the fact that US rates are more or less at zero and our base rate is at 0.5% is probably beside the point, but the narratives couldn’t be more contrasting. This morning’s ILO September unemployment report is expected to show unemployment remain steady at 5.4%, while average earnings for the 3 months to September are expected to rise 3.2%, up from 3% in August. A strong wages number will further reinforce the widening gap between wages and inflation and raise concerns that the Bank of England is not only behind the curve, but is on the way to being lapped. These concerns about deflation could well be addressed this afternoon when ECB President Mario Draghi speaks at a Bank of England event at the Guildhall today. Despite the euro being pushed lower by last week’s bumper US payrolls report there had been speculation that a potential US rate rise next month might be enough to stop the ECB taking extra easing measures in December. That doesn’t appear to be the case if the mood music coming out of Europe has been any guide this week, with speculation about an extension to the expiry of QE, an increase in the monthly amount, as well as further reductions in the deposit rate below -0.2%. Markets will be hoping for any additional insight the ECB President might feel compelled to impart. EURUSD – last week’s bearish shift below 1.0820 opens up the prospect of a retest of the March lows at 1.0460. For this to unfold we need to stay below 1.0830 and the 1.0980 area. GBPUSD – the pound continues to look vulnerable to further losses towards 1.4980 while below the 1.5230 level. We need a recovery back above this level to suggest a return to the 1.5300 area. EURGBP – yesterday’s sharp decline below 0.7075 towards the lows last week throws some doubt on the potential for a move to 0.7300, but as long as we stay above last week’s low the possibility remains. We need to a move above the 0.7160 area, and the highs last week to reinforce. USDJPY – last week’s push through 122.00 now opens up the prospect of a move towards the 124.00 area and August highs at 125.30. Only a move below the 121.80 area would delay the prospect of this scenario unfolding. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.