S markets enjoyed a pretty good day yesterday pushing higher along with oil prices and shrugging off a couple of disappointing economic reports, but the move higher didn’t have sufficient impetus to break us out of the recent ranges of the past few days, but yesterday’s positive session is likely to help markets here in Europe open higher this morning.
US bond markets on the other hand dropped sharply sending yields higher,
somewhat perversely with 2 year yields hitting their highest levels since 2011 above 0.80%. The market reaction seems somewhat at odds to the weakness of the broader data, which gave little encouragement to any rate hawks out there, yet bond markets appeared to be pricing in the increased prospect of some form of tightening
with a 7.5bp jump in 2 year yields.
At the end of last month New York Fed President William Dudley commented that the case for a rate rise in September had become “less compelling”,
but that he still wanted to see how the economic data unfolded before making a final decision.
As one of the more influential members of the FOMC this change of tone from his comments in June,
where he stated that a September move was very much in play, suggested that some policymakers were starting to become more than a little concerned about the recent slowdown in economic data, as well as the volatility being caused by worries about the Chinese economy.
Mr Dudley more than anyone else has his reasons for being concerned about some elements of the US recovery after yet another shocker of a New York Empire manufacturing survey for September yesterday
. Coming off the back of two previous poor reports the internals of the report probably won’t have done anything to change his mood about economic activity in the New York regions.
This, along with poor industrial and manufacturing production reports for August
, could well make Mr Dudley even more reluctant to push for a move on rates now, which suggests consensus on Thursday could well be problematic.
That being said yesterday’s reports probably won’t have shifted the dial that much in terms of market expectations
with tomorrow’s decision remaining finely balanced, with today’s CPI data for August also likely to be closely scrutinised. Annual CPI is expected to stay unchanged at 0.2%, while core prices are expected to edge higher to 1.9%.
Also in focus today we have the latest unemployment and wages data for the UK economy
after inflation data out yesterday showed zero change in prices for August, while core CPI also fell back from 1.2% to 1%.
Today’s average earnings data are expected to continue to contribute to a rise in disposable incomes
with a rise from 2.8% to 2.9% for the three months to July, excluding bonuses.
The ILO unemployment rate for July
is expected to remain stable at 5.6% with August jobless claims set to decline by 5k.
In Europe the final CPI number for August is expected to be confirmed at 0.2%, with core prices unchanged at 1%.
– continues to range trade after falling back below 1.1280 yesterday the larger support level remains at the 100 day MA just above 1.1145, and trend line support from the August lows at 1.1180. A move through 1.1400 retargets the 1.1700 highs seen in August.
– the pound is looking a little soft again after failing to push through the 1.5475 level. If we drop back below the 1.5330 area there is a risk of a move back towards 1.5250 and the 1.5170 lows seen earlier this month.
– trading in a triangular consolidation with resistance at 0.7375 and support at 0.7250. A break through 0.7400 has the potential to target a move to 0.7500. Below 0.7230 suggests a return to 0.7180.
– a bit of sideways trading going on here with key triangle line resistance at 121.15, and triangle support at 119.15. The US dollar still looks vulnerable to a return to the 116.20 area seen a couple of weeks ago, but for now appears to be range trading between 118.50 and 121.50.
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