So far this week there have been a number of interesting macro data points published.
- August year on year Chinese industrial production was slightly better than the July reading but not as good as economist forecasts.
- August year on year fixed asset investment in China was worse than forecast and represents a decline from the July reading.
- August year on year Chinese retail sales was both better than forecasts and the previous reading.
- Month on month Japanese industrial production was worse than forecasts and the previous reading
- July year on year industrial production in the Eurozone was much better than forecasts and the previous reading
- This morning, the Bank of Japan declined to unleash further monetary stimulus for the moment, but the central bank identified slowing emerging market demand as a strain on the Japanese economy.
As we have mentioned before, there are headwinds in East Asia which will impact on the global economy, the Eurozone however represents some potential for some upside. There haven’t been many times in the recent past where that could have been said! But all of this information pales into insignificance as the markets wait for the Federal Reserve. The FOMC interest rate announcement is expected on Thursday and it is clear that the recent turmoil is causing experts to pull back from previous expectations of a rate hike. I suspect they are correct, but it saddens me. It might seem counter-intuitive but what better declaration of confidence would there be right now than a 25bps hike by the US central bank? To dally now would only confirm fears that the global economy is going through a bad patch. Confidence is everything in markets, it would be an easy win in my view. Rates must start to go higher at some point, why not now?
Today we see a raft of data coming out of the UK, the most important being inflation a bit later this morning. We will also get a look at Eurozone labour market data, US retail sales and the Empire sentiment data as well from the United States. All interesting stuff, but my guess is that the market will shy away from over buying dollars as we head into the big decision. We expect relative calm in the currency markets for the next few days, but for choice I continue to believe there is a fair chance the euro continues to recover against the pound, that view will be tested however, if inflation surprises to the topside when the UK data is published shortly. That really would be a surprise.
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