Intraday Market Thoughts

EUR Struggles Post-German GDP, Markets Turns to UK CPI, Merkel/Sarkozy

by Kyle Morrison
Aug 16, 2011 8:22

Euro struggling after disappointing Q2 German growth data, markets await meeting of Sarkozy and Merkel in Paris, while GBP traders brace for UK July inflation. RBA sounds a dovish tone, on concerns about Europe/US. See the link to Ashrafs latest Premium trades on EURUSD, EURGBP, GBPUSD, GBPJPY, silver and US crude oil.

German Q2 GDP growth slowed to nearly a standstill, at 0.1% q/q, from a downward revised 1.3% in Q1 against initially reported 1.5%. Looking at Fridays disappointing French GDP, it was no surprise that German figures would slow so sharply considering the recent sluggish figures.

Yesterdays rebound in equity markets could well be put down to the calm before the storm given that Italy, Spain and France all had national holidays and markets were fairly quiet ahead of todays long awaited meeting between German chancellor Angela Merkel, newly back from holiday and French president Nicolas Sarkozy. If markets were hoping for a some form of solution to the long running saga with respect to the sovereign debt crisis they could well be in for a big disappointment. Italian finance minister Tremontis call for some form of euro bond got the markets speculating yesterday but in reality given the political barriers to such a measure it really is wishful thinking.

In the UK the latest inflation data for July is due out with expectations for prices on a month by month basis to slide back on both the CPI and RPI measure, largely as a result of falling commodity prices and some discounting by retailers. CPI is expected to decline 0.1% and RPI by 0.2%, however the year on year numbers are expected to start rising again with CPI expected to rise from 4.2% to 4.3% though RPI is expected to remain unchanged at 5%. Any additional weakness is however likely to be temporary given recent price rises by utility companies which are expected to come into effect this month.

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In Australia, the release of the latest RBA minutes earlier this morning showed a slightly more dovish outlook, as the bank expressed concern about the turmoil in financial markets affecting growth prospects for the economy. Even though the meeting was held before last weeks bout of stock market weakness and disappointing economic data, policymakers were concerned about how the problems in Europe would be resolved. The minutes also stated that the case against tightening at this meeting was that the downside risks to demand had probably increased.


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