Chinese Dragon Breathes Sparks

Chinese worries continue to scare markets as the nation’s trade data released earlier today fell far short of expectations, casting doubts on whether the sputtering global economy will regain traction any time soon. This comes on the back of the ECB’s downbeat assessment of the Eurozone economy yesterday. With Italian and Spanish economy languishing in recession, there is a strong possibility that next week’s Eurozone GDP data could reveal a contraction for the second quarter. At home, output producer price inflation has cooled, strengthening belief that consumer price inflation might maintain its downward trend next week and head much closer to the BoE’s target rate of 2%.

Pound Sterling – UK Markets

Sterling slipped against the US Dollar in yesterday’s trading session after data revealed a sharp drop in goods exports, confirming the bleak picture painted by the second-quarter GDP released last month. Moreover, the outlook for Britain’s economic growth remains weak, as the Conference Board’s leading economic index continued its downward slide. However, the Pound managed to register modest gains against the Euro after the ECB, in its monthly bulletin, lowered its outlook for the region’s economic growth. The Pound has continued its downward trend against the greenback and is holding well against the Euro this morning. Data just out indicated that output producer price inflation eased for July, strengthening speculation that next week’s consumer price inflation might show signs of heading closer to the BoE’s target, thereby providing room for the central bank to undertake further easing measures. Apart from the inflation reading due next week, the minutes of the BoE’s latest monetary policy meeting, retail sales and unemployment data are likely to be keenly tracked for an overall view of the economy.

US Dollar – US Markets

The ECB’s warning yesterday that downside risks to the Eurozone’s growth are still very prevalent, coupled with downward revision to the GDP forecast for the current year, spooked markets and spurred demand for the US Dollar as a safe haven asset. Moreover, an unexpected decline in US initial jobless claims last week and a narrower trade deficit for June revealed an upbeat picture of the economy and doused hopes of QE3. The trend has rolled over this morning, with the greenback trading on a firm footing against the majors, as risk appetite remains subdued after data indicated an unexpected contraction in Chinese trade surplus for July. With little to offer in terms of macro releases in today’s session, the US Dollar is expected to track overall risk sentiment prevalent in the market. Consumer price inflation, retail sales and consumer sentiment data are set to be keenly eyed next week as the key determinants of further moves by the Fed.

Euro – European Markets

A dismal monthly report issued by the ECB weighed heavily on investor sentiment and led the Euro to register losses against its major counterparts in the previous session. The central bank hinted at continued downside risks to the bloc with further GDP contraction in 2012. Fitch Ratings opined that the ECB should spring into action once again with a €31 trillion long-term refinancing operation. The common currency continues to trade under pressure against the US Dollar in today’s trading session, as downbeat Chinese trade data sapped demand for riskier assets. Meanwhile, data just out revealed that German consumer price inflation stabilised for July while French manufacturing production rebounded in June. A raft of GDP data across the Eurozone, including Germany and France, are the key macro highlights for the forthcoming week and is likely to set the trend for the common currency.

Other Currencies – Highlights

A wider Canadian trade deficit for June, coupled with a more than expected decline in housing starts for July, highlighted the dismal domestic economic scenario. However, in a move to allay jitters the Bank of Canada Governor, Mark Carney, opined that the nation has been growing above trend and that strong fundamentals might warrant withdrawal of some monetary stimulus. For today’s trading session, market participants will keenly eye the unemployment data for July due later today, which is expected to show a slower pace of jobs addition - just enough to keep the unemployment rate stable at 7.2%. Additionally, consumer price inflation data scheduled next week is expected to provide further insights over the stance that the central bank might adopt going forward.