Renewed Risk Aversion Ahead of Key US Data

Eurozone PPI edges up, UK construction expansion slows after disappointing manufacturing. US August Nonfarm payrolls awaited.

After yesterday's disappointing manufacturing PMI's increased concerns about the sustainability of growth across Europe, Eurozone July PPI rose 0.5% from no change m/m, while up 6.1% y/y from 5.9% y/y. the focus shifts towards prices today with the release of the latest PPI data for July.

A couple of weeks ago a rise in prices would have had markets looking towards the ECB with respect to further tightening, however a lot has changed since then, as the growth picture has darkened considerably.

Yesterday's final German Q2 GDP growth number didn't make great reading after revisions to consumption, imports and investment, which were all revised lower, while manufacturing PMI slipped back from 52 to 50.9.

Trichet’s comments earlier this week about looking again at recent developments in medium term price stability have raised the prospect that the next move in interest rates could well be lower, given the recent economic data coming out of Europe.

This view is likely to gain traction if economic data continues on its downward path.

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UK August construction PMI slipped to 52.6 as expected from 53.5 The more important number from a UK perspective will be Monday's August services PMI which is also expected to remain firmly above 50 at 54.3. Recent comments from MPC member Adam Posen about further QE has raised fears about the likelihood of a move at next week's Bank of England meeting, especially in light of yesterday's manufacturing PMI data which came in at 49.

Today's August non farm payrolls are the next key event, and this number could give extremely important clues to the Fed's thinking at this month's 2 day FOMC meeting. Whatever the outcome it promises to be volatile in the event of a miss ahead of the long Labour Day weekend.