Market Drivers September 28, 2012
Risk sentiment remains positive as IBEX leads rebound in shares
German Retail Sales lackluster
Nikkei down -0.89% Europe up 0.34%
Oil at $92.50/bbl
Gold at $1784/oz.

Europe and Asia:
AUD Private Sector Credit
JPY Nomura/JMMA Manufacturing Purchasing Manager Index 48 vs. 47
JPY Jobless Rate 4.2% vs. 4.3%
JPY Household Spending 1.8% vs. 1.1%
JPY National Consumer Price Index -0.4% vs. -0.2%
JPY Retail Trade 1.8% vs. -0.3%
JPY Industrial Production -1.3% vs. -0.4%
JPY Housing Starts -5.5% vs. -7.4%
CHF KOF Swiss Leading Indicator 1.67 vs. 1.54
EUR German Retail Sales 0.3% vs. 0.6%
EUR Eurozone Consumer Price Index Estimate 2.7% vs. 2.4%

North America:
USD Personal Consumption Expenditure Core 8:30
USD Personal Income 8:30
USD Personal Spending 8:30
USD U Mich Confidence 9:55
CAD GDP 8:30

Risk FX remained relatively well bid with EUR/USD holding near its session level highs in morning European trade as risk sentiment and end of the month flows supported high beta currencies. The IBEX led the rebound in European shares in the wake of the Spanish budget announcement yesterday and traders were awaiting the release of Spanish bank stress tests due 1600 Madrid time. Despite the positive risk background euro was unable to progress much beyond the 1.2950 level as the shorts lined up to sell ahead of the key 1.3000 mark.

On the economic front German retail sales improved marginally in August suggesting consumer spending is beginning to expand again, but the data missed analysts estimates. Retail sales rose by 0.3% versus 0.6% eyed. On an annual basis, retail sales dropped 0.8% compared to forecast for a 0.9% fall. This was the second consecutive monthly decline after a 1.6% dip in sales in July. Sales of retail trade of food, beverages and tobacco rose 0.8% annually in August but non-food retailing fell 0.4% indicating that the German consumer remains cautious about making durable goods purchases.

Overall the Retail Sales data showed that demand in Europe’s largest economy remains lackluster as concerns over slowdown in EZ growth as well slight increase in unemployment weigh on consumer sentiment. The latest GFK survey has shown no improvement in expectations as we move into the key Christmas selling season.

The latest German Retail sales data shows that policymakers cannot count on domestic demand to spur growth in the economy and with exports slowing, the country faces a very low growth environment for the foreseeable future.

In addition latest flash CPI data from the EZ showed that inflation is starting to percolate as price levels rose 2.7% versus 2.4% forecast. To add insult to injury inflation gains were the largest in the periphery especially Italy, Greece and Spain. One of the unintended consequences of loose monetary policy and tight fiscal controls is that it creates the worst of possible scenarios for Eurozone’s weakest members as they see price level rise and growth contract. This may become a much more serious problem for European officials if the region remains mired in recession for the foreseeable future.

In North America today, Chicago PMI and personal spending/income data is on the docket with traders keeping a very sharp eye on the manufacturing gauge in the wake of very weak durable goods orders yesterday. Despite the positive risk environment of the past 24 hours global economic data continues to flash yellow warning signs and once the attention begin to return to micro rather than macro concerns the risk trade could suffer. For now EURUSD treads water, but 1.3000 remains formidable barrier into the weekend.

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