Some better than expected Eurozone data this morning. Q3 GDP growth in both Germany and France was marginally better than expectations, and an improvement on the previous quarter. And so it’s not too surprising to see the euro has been strengthening in early trading. As I write Italian growth numbers have just come out… as expected Q3 GDP growth has slowed. Not good! Today is quite data rich with Eurozone inflation data, retail sales and sentiment data out of the US. It’s also worth noting some of the data from Asia, where Indian inflation has slowed more quickly than expected and Hong Kong GDP growth outperformed forecasts. So some good and some bad. I would definitely chalk up the Indian inflation data as a positive. If they can cut rates there and get growth accelerating again, that will be a positive for the global economy.
The dollar has continued its seemingly inexorable march higher overnight, but perhaps the mostly decent macro data this morning has helped because the usual suspects are off their lows versus the greenback. I speak of course of the euro, Japanese yen and pound sterling, but perhaps I’m quibbling. They’re not that far off the intra-day lows. This looks and feels like an environment where trends are going to continue, and the Nikkei making another year to date high is very supportive of this view.
It goes without saying that all is not well in the macro-sphere, and the news out of China continues to be quite sobering. Credit growth was slower than forecast with liquidity injections by the central bank unable to spur a pickup in lending. China has become a credit growth driven economy and so this is not great news. You look at China leveraged economies like Australia and it’s hard to feel optimistic. And recent comments from the Reserve Bank of Australia governor merely reinforce the view – he has suggested that the RBA has not ruled out intervention in the currency markets to lower the Australian dollar.
Before anyone shakes their head and says “just once I would like to hear of a central bank trying to support their currency!”, it’s worth pointing out that over the last month both the Russian and Nigerian central banks have done just that. It really starts to paint a picture of one set of currencies (primarily in developing economies) in free fall balanced by currencies (in advanced economies) which are trying to competitively devalue. And then there’s the mighty dollar: aloof, the benchmark against which all others are compared. It was only a few years ago where everyone wanted to sell dollars to buy… whatever! Even Brazilian super-models insisted on invoicing in euros. I would love to know if Giselle is still doing that… I’m betting not.
I suspect that the Eurozone inflation data and University of Michigan consumer sentiment numbers will be the key focus today. We’ll be keeping an eye on things as usual. Incidentally if you’re a denizen of the twitter-verse, we often tweet following significant events. You can find us at @parityfxplc. Have a wonderful weekend.