Growth In Focus

With the global economy facing some headwinds lately, the G20 policymakers put the brakes on debt consolidation in order to focus on growth. The leaders also stressed the need to shift policy carefully so as to avoid market volatility. In an attempt to assist the Chinese economy, the People’s Bank of China removed controls on bank lending rates. However, Portugal continues to navigate troubled waters, as reports revealed that the nation failed to agree on a salvation pact aimed to help complete its EU-led bailout plan. With little on the global economic calendar today, US macro data will gain market attention. At home, the second quarter GDP data due this Thursday will prove crucial for Sterling.

Pound Sterling – UK Markets

The Pound has begun this week on a firmer footing against the US Dollar amid improved sentiment among traders. In the midst of improving UK economic fundamentals, data scheduled later this week is expected to indicate that the economy grew at a faster pace for three months ended June, thereby highlighting that the nation continues to tread the path to recovery after escaping a triple dip recession in the last quarter. Meanwhile, Sterling is trading in a tight range against the Euro this morning. Despite the recent upturn in the British economy, the Uk’s overall fiscal position remains grim. The public sector finances data released on Friday showed that the nation continued to borrow at a faster than expected pace for June, thereby casting doubts over the Chancellor’s ability to match his deficit target. With a light economic calendar today, market participants are expected to track global developments for further direction. Meanwhile, tomorrow’s BBA mortgage loans data is expected to shed light into the British housing sector.

US Dollar – US Markets

The US Dollar has nudged marginally lower against the Euro and the Pound in today’s trading session. Markets seem to have supported the G20’s call for a growth based approach by countries around the world. The meeting also reminded central banks to scale back their respective stimulus programme in a phased manner to lessen its market impact, especially on emerging economies. In today’s trading session, the Chicago Fed’s national activity index and existing home sales data will be closely watched for further cues to risk appetite. With both indicators expected to show an increase, it will further strengthen the case of a partial withdrawal of the Fed’s stimulus measures. Going forward, market attention is expected to remain focused around the regional manufacturing indices for more hints on the manufacturing sector while housing related indicators will be closely gauged in the midst of rising mortgage rates. Additionally, this week’s durable goods orders data is expected to lay the foundation for the second quarter GDP data due for release next week. With the Fed’s future policy stance inevitably tied to the performance of the economy, this week’s economic indicators will provide further food for thought to investors on the probable timing of a QE3 tapering.

Euro – European Markets

In the absence of any major economic news, the Euro is range bound against the US Dollar in today’s session. Portugal’s three main parties have failed to agree on a national salvation pact, thereby renewing concerns over the country’s ability to pass reforms necessary to receive its international bailout and raising the possibility of snap elections. However, the Portuguese President has ruled out any such possibility. In the midst of ongoing turmoil in Europe due to a tough austerity stance, the G20 leaders pledged to prioritise boosting growth rather than reducing budget deficits. On account of a light European economic calendar today, cues emanating from the US will hold market interest. Meanwhile, tomorrow’s Euro zone consumer confidence data ahead of a raft of manufacturing and services PMI due mid week will be keenly watched to ascertain the pace of the region’s recovery. The Ifo sentiment indices in Germany due later this week also has the potential to sway market sentiment during this weekly session.

Other Currencies – Highlights

A landslide victory for the Japanese Prime Minister, Shinzo Abe’s ruling party in the upper house elections over the weekend is likely to pave the way for the Prime Minister to pursue his aggressive pro-growth policies and structural reforms alongside the central bank's unprecedented monetary easing measures. Markets have responded positively to the election outcome, as the Yen strengthened against the majors in today’s trading session. Meanwhile, the Bank of Japan board member, Takehiro Sato, has not ruled out further measures to assist the economy, if required. Market participants look forward to the Cabinet’s monthly economic report due tomorrow for gauging the nation’s recovery prospects. Although trade balance data also features in this week’s economic calendar, all eyes will hover around the consumer price index data due this Friday to ascertain the impact of recent easing measures undertaken by the Bank of Japan.