Market Drivers for September 30 2014

EZ GE Retail Sales better, but employment slumps

UK GDP revised higher

Nikkei -0.84% Europe 0.22%

Oil $94/bbl

Gold $1217/oz.

Europe and Asia:

CNY HSBC PMI Final 50.2 vs. 50.5
EUR GE Retail Sales 2.5% vs. 0.6%
EUR GE Unemployment 12K vs. -2K
GBP UK GDP 0.9% vs. 0.8%

North America:

CAD GDP 8:30

USD Consumer Confidence 10:00

The euro fell to two year lows dropping below the key 1.2600 level in morning European trade after flash CPI readings from the region revealed that core inflation has fallen to a five year low. EZ core CPI printed at 0.7% versus 0.9% eyed – well below the ECB’s target of 2%.

The latest inflation data suggests that price pressures in the region are non-existent as demand remains tepid and fears of disinflation begin to take hold. The figures are likely to put further pressure on ECB to begin an aggressive easing program in order to stimulate demand. This Thursday ECB chief Mario Draghi will no doubt be queried about the extent and size of the proposed ABS buying program as well as any additional plans that the central bank may have.

In other economic news from the the region German Retail sales suprised to the upside rising a strong 2.5% versus 0.6% forecast. German unemployment however rose slightly to 12k from -2K anticipated. Overall the data from EZ largest economy shows that the expansion continues but at a very modest pace. Meanwhile the rest of the EZ continues to struggle and the best that can be said about the periphery is that conditions have not gotten worse.

Ironically enough the very low pace of inflation in the EZ may provide the Fed with more time to keep rates at zero bound. Yesterday FOMC member Charles Evans made the point that while US growth has picked up, growth in EZ and Japan remains anemic. With global demand still highly depressed, the Fed may want to wait longer than the market expects before committing to a normalization policy.

Elsewhere UK GDP final reading for Q2 was revised to 0.9% from 0.8% slightly beating market expectations but cable nevertheless tumbled in a broad dollar rally. The pair dipped below the 1.6200 level before popping back above that level in volatile London morning trade.
Cable has struggled over the past month as the dollar juggernaut and the Scottish referendum has pushed the pair more than 900 points lower off its yearly highs. Yet the UK economy continues to post some of the best results in the G-7 universe and there is still a strong chance that the BoE will be “first to hike” since the 2008 credit crisis. Later in the week the market will get a glimpse at the troika of UK PMIs and if the data proves positive, cable may get its bid back.

In North America today is the last quiet calendar day of the week before the market gets hit with a deluge of US data including the NFPs on Friday. Today the docket contains Chicago PMI readings and Consumer confidence numbers. Neither report promises to be market moving, but traders will nevertheless keep a sharp eye on USD/JPY 110.00 level. The pair has climbed within 25 points of that key barrier over the past few days and if it can push through that handle it could trigger massive stops given the fact that it has not been at 110.00 since 2008.

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