Euro zone Retail Sales, US Jobless Claims on Tab
Four trading days into the New Year and investors across the globe are on the edge amid persistent worries surrounding slowing growth in the Chinese economy. In the absence of significant macro updates in the UK, Sterling traders will continue to focus on global economy, particularly any headlines from China.
Meanwhile, the European docket will offer a slew of economic data releases in the Euro zone including that on business climate, consumer confidence, retail sales and unemployment rate. Earlier today, German factory orders rose well above expectations for November driven by a jump in demand for basic-goods since 2011. Across the Atlantic, weekly jobless claims data due later in the day will be closely scrutinised.
Pound Sterling – UK Markets
The Pound dropped to fresh multi-month lows against the US Dollar yesterday after data from UK’s dominant services sector revealed some weakness in activity growth for December. Although the reading suggested strong overall growth in the services industry for last month, markets had been anticipating a slightly better UK print. The survey still points out that the services sector will remain the major growth driver of the UK economy for the fourth quarter of 2015, offsetting some weakness witnessed in manufacturing recently and putting the economy on track for another year of growth this year. However, there is no assurance of a rosy outlook for the UK economy as the cost impact of the living wage, government spending cuts, uncertainty in regards to interest rate increase, global economic growth jitters and a potential exit of the UK from the Euro zone poses downside risks to this year’s economic growth.
Tomorrow, UK’s trade data will be in focus and could again raise concerns about the state of the British economy against the backdrop of the dwindling export of goods and the struggles in manufacturing.
US Dollar – US Markets
The US Dollar has nudged lower against the shared currency after minutes of the Federal Reserve’s (Fed) December monetary policy meeting out late yesterday revealed that some officials were concerned about inflation lingering below their 2% objective while giving their nod to raising rates last month. Officials including Fed Chairperson Janet Yellen have repeatedly indicated that the US central bank will move rates at a gradual pace. However, the FOMC meeting minutes are likely to have raised some doubts that the Fed might end up doing less than what they had initially hinted.
On the macro front, data released yesterday showed that US services firms recorded their slowest activity growth in year and a half for December. However, an unexpected gain in private payrolls for December via ADP provided fresh optimism for the US labour market in the New Year. Today’s weekly update is also anticipated to show a healthy decline in first-time jobless claims. If the predictions hold true, the news will encourage confidence that tomorrow’s nonfarm payrolls data will also dispense good news for the US jobs market.
Euro – European Markets
Earlier today, the Euro extended its recovery mode and jumped above the 1.08 mark against the US Dollar supported by a renewed bout of risk-aversion across financial markets. Also, the minutes of the recent FOMC meeting published late yesterday highlighted that some of the Fed officials were more concerned about an extended period of low inflation levels, reflecting a slightly dovish tilt which has further aided the recovery in the Euro – US Dollar currency pair. The Euro traders will be kept busy by a wave of economic releases in Europe scheduled in today’s session.
Later in the day, the rebound in the currency pair could further gain traction if the Euro zone retail sales expand as per market estimates in November which will be a first since July 2015. Retail sales growth in the Euro zone will likely add to signs of a stronger recovery across the Euro bloc, which could encourage the European Central Bank (ECB) to adopt an improved economic outlook and retain its current stance of monetary policy throughout 2016. Also, data earlier today showed a surprise rise in German factory orders for November.
Other Currencies – Highlights
The brief rebound in Aussie – US Dollar currency pair stumped earlier today and hit a near-two month low after the Chinese central bank devalued the Yuan further and the officials were coerced to suspend share trading for a second time this week. Also the Chinese currency’s latest movement has fuelled concerns that economic growth in China, world’s second largest economy and Australia’s one of the major trading partner, is slowing faster than anticipated. This is likely to have weighed on exporters of Australia, who rely on Chinese demand to support their own growth. In the coming months, the Reserve Bank of Australia might be pressured to cut rates in an effort to offset weakening demand from China.
In economic news, the Australian economy recorded its twentieth monthly trade deficit in a row for November as a weaker Aussie currency made some of the imports expensive. In addition, building approvals in Australia posted its strongest decline in nearly a year in November.