Intraday Market Thoughts

Europe CPI in Focus as Market Mulls Next ECB Move

by Kyle Morrison
Aug 31, 2011 6:07

Europe CPI in focus after Trichet comments earlier this week, German retail sales set to fall, with unemployment set to remain unchanged. Japanese industrial production slows, FOMC minutes show further indecision ahead of US ADP.

This week's s comments by ECB President Trichet about the bank reviewing the risks to price stability suggested that the ECB could be on the verge of softening its recent inflationary tone. Today’s Euro zone CPI data could well offer further clues in that regard and keep a lid on the recent rise in the single currency. Expectations for August are for the rate to remain unchanged at 2.5%. In Italy August CPI is expected to rise 0.2% after the 1.7% drop in July, with the year on year figure remaining constant art 2.1%.

Investors will be hoping that yesterdays evidence of disappointing slump in business and economic confidence doesnt translate across into Germany'ss retail sector, after yesterday's Italian retail sales data saw a much bigger drop then expected. German July retail sales are expected to drop 1.5% down from a 4.5% rise in June.

Good news on the unemployment front is not expected either with German unemployment expected to remain at 7.7% and Euro zone unemployment expected to just stay under the 10% level at 9.9%.

Japanese industrial production continues to struggle to recover from the aftermath of the problems caused by the March earthquake and its after effects with July industrial production rising 0.6%, much less than June’s 3.8% rise, and well below expectations of a rise of 1.4%, as the strong yen continues to hobble the recovery in productive capacity, and global demand continues to slow. New Prime Minister Naoto Kan clearly has his work cut out in getting the beleaguered Japanese economy back on track.

Last night's release of the FOMC minutes showed that the committee remains divided over the next steps with respect to the ailing US economy. Yesterday’s plunge in US August consumer confidence to a 28 month low was shrugged off by the markets on the basis that it probably makes further easing more likely. Even so given that the last tranche of QE has delivered little in the way of tangible benefits it is debatable how much use further stimulus could be. In any event we will soon find out if today’s releases of August ADP employment report and Chicago PMI also miss to the downside.

Gold continues to find support after its recent plunge after Chicago Fed president Charles Evans said that he was “somewhat nervous” about the US economic recovery, and favoured further stimulus to support an ailing economy.

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