Further weakness in commodity prices as well as disappointment with respect to the latest guidance from Apple saw European markets drop sharply yesterday, prompting steep sell-offs in both the basic resource and technology space as investors continued to take profits on the strong gains of the last two weeks. On the whole US earnings have come in broadly ahead of expectations as companies shrug off concerns about the strong US dollar, but it should be noted that these expectations are coming off a low hurdle, and when compared to the same period last year the US dollar is over 20% stronger on a trade weighted basis, which suggests that at some point profitability will start on companies’ ability to increase profits. Oil prices have continued their recent run of declines with US prices down over 16% on the month already, from the July peaks near $59, as inventory data came in well above expectations, and with supply continuing to outstrip demand there is a risk we could well see further losses. As for today we could well see a slightly higher European open after US markets pared the worst of their losses with the main focus today expected to be on the UK, with the latest retail sales numbers for June, and ongoing events in Greece, after last night’s second parliamentary vote on the latest set of reforms. It is increasingly becoming apparent that the Greek Prime Minister, Alexis Tsipras wants to crack on with making the best of a bad job, and agree the terms of a new bailout, so that he can then call new elections sometime in September in order to refresh his mandate with the voters, as well as sell the positives of the so called €35bn EU growth program, agreed with the EU Commission. In the UK, the latest minutes from the July Bank of England rate meeting showed that officials were concerned about ripple out effects from the Greek crisis with respect to their decision to hold rates. The decision to hold rates was unanimous but it is increasingly becoming apparent that this meeting could well be the last meeting where there is a consensus. We could well see the first signs of dissent and calls for a rise in rates as soon as next month, with two officials potentially breaking ranks. The two most likely suspects are likely to be Ian McCafferty and Martin Weale given some of their recent comments, which would put the voting patterns back to where they were at the end of last year, of 7-2. This split does appear somewhat strangely timed given the latest CPI data which showed headline rates slide back to 0%, but it is no secret that some officials are keen to start normalizing policy sooner rather than later. It was also apparent from the minutes that other members were also moving towards the opinion that inflationary pressures were becoming more finely balanced. On the dovish side though there was the concern that the strong pound was acting as a brake on inflation, while recent wage growth may not be as durable into the back end of this year. Today’s retail sales numbers for June are expected to show that consumer’s shopping habits are still holding up well, but not running away despite the sharp increases in wages seen in the last couple of months. We are still expected to see a fairly good quarter for retail sales though with a gain of 0.4%, for June, rounding off a quarter where we saw 1.2% in April and 0.2% in May, which should augur well for a reasonably good Q2 GDP number. EURUSD – while above the lows this week at 1.0815, the risk remains for a push towards 1.1050, but we need to push beyond 1.0975 first. A move through 1.0800 targets 1.0750, trend line support from the lows this year at 1.0460. GBPUSD – the pound looks to be stuck in a range but does appear a little firmer, though it needs to stay above the 1.5530 level. Only a move below here argues for a move towards the 200 day MA at 1.5420. There is currently decent resistance at the highs last week at 1.5675, which needs to break to retarget the 1.5820 level. EURGBP – yesterday’s pullback fell short of the lows this week at 0.6930, just above the November 2007 lows, rebounding from 0.6965. The current stabilisation could see a move back through 0.7050 towards the 0.7120 level in the medium term. USDJPY – while below the 124.50 level and this week’s key day reversal suggests we could well head back towards the 123.30 initially, on the way to a retest of 122.50. Only a move through the 124.50 level, argues for a return to the 125.85 highs. CMC Markets is an execution only service provider. 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