The outperformance of US markets relative to Europe’s markets continued yesterday, as the S&P500 closed just below its record highs, while European investors chose to lock in some of the gains of the past few days, as concerns about a paring back of central bank stimulus kept a cap on European markets. That being said Europe looks set to open higher this morning despite Chinese HSBC manufacturing PMI hitting a three month low overnight at 50.7 in signs that the rebound here is also faltering. With two hawks on the Bank of England MPC joining the lone hawk on the FOMC attention will now inevitably shift to when rates start to rise, especially if US and UK economic data continues to improve. Last night’s FOMC minutes showed that the Federal Reserve does appear to be moving in the same direction as the Bank of England, where higher rates might come sooner rather than later. Some participants felt that the Fed was getting closer to the time to “call for a relatively prompt move toward reducing policy accommodation.” This change in tone would appear to suggest that in the event of a continued improvement in the labour market, that a rate rise could well be a matter of months away, and that Mr Plosser might soon have company in his dissent at the next Fed meeting in September. After the bigger than expected contraction in German Q2 GDP seen in published data earlier this month, attention has now shifted to the resilience or otherwise of the data in Q3. It is now apparent that the recent strength seen in German manufacturing and services PMI data in the second quarter appeared to have considerably overstated the strength of the German economy. It is therefore debatable as to how much weight we should attach to this morning’s preliminary flash manufacturing and services PMI data for August. That being said they are still expected to be a guide with respect to a “direction of travel” and in this context we can expect to see further weakness on both measures with the manufacturing component slowing to 51.7 from 52.4, with services slowing from 56.7 to 55.5. As far as France is concerned I suspect that President Hollande wishes he was still on his annual holidays, as the latest PMI aren’t expected to paint a particularly rosy picture either. French government officials have gone to great lengths to blame any number of factors, a stance that drew some indirect criticism from ECB President Mario Draghi earlier this month, about certain countries not living up to their obligations with respect to their reform efforts. The latest flash manufacturing and services PMI numbers for France are also expected to remain weak with the manufacturing number expected to come in at 47.8, with the services component at 50.3. One thing is almost certain and that is further weakness in the economic data is likely to prompt more calls from French politicians for the ECB to do more so they don’t have to, and in the process bring the prospect closer of a clash between Paris and the EU, as well as Berlin. Rather surprisingly the latest minutes from the Bank of England saw two MPC members break ranks and vote for a 25 basis point rate hike at the last meeting. I guess that’s what they mean when the inflation report refers to a wide range of views on the amount of slack in the economy. That being said, what MPC members knew then and what they know now is slightly different, given the most recent CPI and wages data. It therefore doesn’t perceptibly alter the prognosis that a rate hike is more likely next year than this year. It does however change the maths somewhat with respect to the vote swing needed to push rates up. Today’s retail sales data for July in particular is likely to be a gauge as to whether the recent slowdown in consumer spending is anything more than a temporary lull as consumers swap the shops for a summer of sport on the sofa. Expectations are for a rise of 0.4% in July, up from the 0.1% rise seen in June, however the equivalent BRC numbers last week saw a 0.3% decline in July, so don’t be surprised if these numbers disappoint. The public finances for July are expected to see the benefit of some cash receipts as tax payers on self-certification settle up for the tax year just gone, with a surplus of £1.9bn expected. EURUSD – the euro still looks soft having broken below the November 2013 lows at 1.3300, with the potential for a move towards 1.3220. Resistance now comes in at 1.3330, the previous lows and behind that at the highs this week just above 1.3410. A move through 1.3440 targets a move towards 1.3500. GBPUSD – having broken below the 200 day MA at 1.6665 we need a close back above it to diminish the downside risk. The pound now looks set for a push towards the 1.6520 level and April lows. We need to see a move back above the highs this week at 1.6740 to signal a larger squeeze. EURGBP – it would appear that we have seen the highs in the short term after a sharp drop back below the 0.8000 level yesterday. This remains a key pivot and while we stay below the risk is for a move towards 0.7940, trend line support from the recent lows. Above 0.8000 retargets the highs last week at 0.8035. USDJPY – we could well be on the verge of a break higher having gained a foothold above 103.10. The next resistance remains at the April highs at 104.10. The greenback needs to stay above 102.80 for this to unfold. We also have support at 102.10 and 101.20. CMC Markets is an execution only provider. 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