European markets look set to improve on the flat session yesterday with a higher open higher this morning taking cues from the strong finish in the US after shares in Apple Inc (NASDAQ:AAPL) recovered and weak Chinese inflation numbers which prompted a rally in Asia over the prospect of more Chinese government stimulus.
French and German CPI data is released this morning. The expectation is for no change in the 4-year low of an 0.8% year-on-year increase in prices for Germany and while prices in France are expected to tick higher in August but annually it is the lowest increase since 2009.
In a sense, following the ECB’s latest policy announcement of an asset purchase program, today’s inflation data has slightly less significance and may have a more muted impact on markets since the low inflation is clearly being acknowledged.
With the euro and European bond yields now down significantly in the past few months over possible ECB action, now that the central bank has actually moved it is worth looking at the policy response by other banks, particularly on rates.
The Swiss franc fell yesterday after Swiss National Bank Governor Thomas Moser said the Bank is "open" to negative interest rates and the dollar-yen held onto 6 year highs after the Bank of Japan purchased government bonds with a negative yield as part of its QE program.
It now looks like the race to the bottom amongst global central banks may in fact have no bottom under NIRP (Negative interest rate policy).
Scottish independence took another twist yesterday after Mark Carney BOE governor last night warned that an independent Scotland using sterling without having the BOE as a lender of last resort for its large financial sector would need large reserves to maintain bank stability, perhaps one year’s GDP at around 130bn GBP.
The comments were supportive of the “No” campaign but cable is languishing at a 10-month low because the risk remains that the Scottish electorate are more focused on nationalism than monetary concerns.
EURUSD – After its post-ECB plunge, the euro has traded back and forth around 1.29 to the US dollar. The currency is hugely oversold but could remain so while trending downwards. A re-test of the psychological al 1.30 seems likely before another move perhaps targeting 1.2750, the lows from April and July 2013.
GBPUSD – The pound made a large lower gap and close on Monday but has finished the last two trading days with spinning tops, largely unchanged around 1.61. 1.60 is the big psychological level which coincides with the 61.8% retracement of the rally since July 2013 and a move below there could spell a new era of weakness for sterling.
EURGBP – The euro-sterling cross is toying with a double bottom pattern. The break-out price would be 0.8035 which saw a false break today. Should the pair cover Monday’s higher opening gap the pair could see a re-test of the lows around 0.7890.
USDJPY – The break of long term rising trendline connecting the Feb and June 2013 lows came to nothing and dollar yen has surged to new multi-year highs. 107.50 is a potential sticking point from rising trendline connecting the May and Dec 2013 highs while the recently broken multi-year high at 105.45 could act as support.
Equity market calls
- FTSE 100 is expected to open 14 points higher at 6,844
- DAX is expected to open 18 points higher at 9,718
- CAC 40 is expected to open 5 points higher at 4,455
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