Investors have without any doubt started to look at the possibility of an early increase in the interest rate as this can be seen in the US bond yield which has been rising for the past few days. Given that we have the unemployment claims data due today, a sturdy reading will reconfirm the strength in the labor market which is one of the mandate for Fed. Also, the US retail sales data, which is due on Friday, could very well make everyone forget the last week’s flimsy US non farm payroll numbers, which hit the wire last week. The resilient number will settle that the US consumer is in a strong position and confident about the future prospect.
A positive reading for the unemployment data and for the US retail number could push the dollar index a little higher. The same move may be seen in the US bond yields, however the selling assault may continue for the yellow metal which is losing its love amid its lovers.
Back in the UK, pleas by Cameron are in full swing who is trying his best efforts to persuade the public that the best interest is to stay together. Perhaps, he may need to bring more teeth in his argument if he really wants to persuade Scott. A divorce between the two countries could be very messy and bring a lot of volatility in the market. However, it is more than likely that despite the notorious nature of the poll results so far, which has brought Cameron on his toes, Scotland may not throw away the wedding ring and remain part of the United Kingdom. Under such circumstance, GBP which had been under tremendous pressure may actually experience a huge spike and the probabilities of UK raising the interest rate first may once again occupy the front bench.
RBS could be under pressure this morning as the company has confirmed that it may have to change its domicile location if the YES vote is the final result. Surely, under such situation, its credit rating could be under major threat as well.
European markets have enjoyed a session of low volatility yesterday as there was not much economic data in the way, however the situation is not the same today. We have received the German CPI number today and it has shown no improvement. The French CPI data is due shortly as well. It is important to keep in mind that new European sanctions on Russia will hit the headline on Friday and a counter reaction could be stronger and much more costly for Europe, as Russia can use its leverage of cutting the gas supply for Europe, given that the winter is on our doorstep. One would wonder how far these sanctions drama is going to go, because Mr Putin is not someone who is going to budge or be threatened by these, so if there is any point to this at all.
I believe any kind of sanctions and a counter reaction is going to make things more difficult for the president of the ECB who is already trying his last bullets to save the sinking growth in the region.
Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.