Market Drivers September 29, 2017
Europe and Asia
EUR: GE Unemployment -27K vs. -8K
GBP: UK GDP 1.5% vs. 1.7%
EUR: EZ CPI 1.1% vs. 1.2%
North America
USD: PI/PS 8:30
USD: PCE 8:30
CAD: GDP 8:30
The pound took it on the chin in morning London trade today after UK Q2 GDP came in significantly weaker than expected.
UK GDP printed at 1.5% versus 1.7% while Current Account ballooned to -23B vs. -15B. This was the slowest pace of growth since 2013 and it was driven primarily by the services sector which makes up 80% of UK economy. Yet even the services data showed some weakness as July came in -0.2% vs. June.
The news puts in question the wisdom of hiking rates before the year-end. Although inflation remains elevated, the BoE would in effect begin tightening monetary policy just as the momentum in UK economy begins to slow. Cable dropped to a low of 1.3355 before finding a modicum of support.
The news on the continent was a bit better with German unemployment improving to -23K versus -5K but inflation pressures continued to be stubbornly low with core CPI coming in at 1.1% versus 1.2% eyed. Still, the EUR/USD traded bid with the pair retaking the 1.1800 figure as the market remains skeptical about US rate hikes in December.
On the North American docket, all eyes will be on US Personal Income and Spending figures with consensus looking for a decline in both gauges from the month prior. Personal income is expected to rise by 0.2% and personal spending is projected to increase by 0,1%.
The focus of the market, however, may be on the PCE data which is the Fed's favorite measure of inflation. The PCE is anticipated to print at 1.2% which would suggest that inflation remains muted, but if the data misses its mark the dollar could get hit once again with USD/JPY testing the 112.00 level as the day proceeds.
The markets remain unconvinced that US tightening will proceed unless US data starts to confirm Fed's hawkishness. Today's releases, therefore, could provide the near term direction to the buck which has stalled for the past few days.