Good morning,
Dollar remains the focus
The US dollar is in the midst of consolidating a 3 day winning streak this morning following a fairly quiet start to this shortened week’s trade. Oil markets were the main driver of yesterday’s USD strength with a fall in crude prices coming following a report showing increased supply levels within the US.
Through the Asian session some profit has been taken on this move. All in all the dollar, in a post-Jackson Hole market, very much remains the currency of focus. USD bulls were given another boost by a strong US consumer confidence number that rose to the highest in nearly a year. The big picture is that we are seeing the US economy as an economy that is more than able to create jobs and that is allowing pay to also recover. More people said that jobs in the US were plentiful and that they expect their incomes to increase in the coming months.
For an economy that is fuelled by consumption the news that more and more respondents are planning on buying new cars, houses and home appliances that can only be good news. We will have to wait until Friday afternoon to see whether the positivity around the jobs market is justified or not.
What can weaken the UK consumer?
UK consumers have also been shown to be more positive than initially thought. GfK said its household confidence index jumped 5 points to minus 7 in August, taking back nearly half of the Brexit related losses. A measure of whether consumers will make major purchases also rose. Of course, the economic effect of Brexit is more likely to be seen towards the end of the year as politics and the labour market begin to weigh.
Theresa May is set to chair a meeting of her Cabinet at Chequers today to discuss just what the UK’s approach to the negotiations with the EU should be. She heads to the G8 meeting in China later this week and will want to make sure that the UK’s negotiating position is strong enough before talks start in early October.
Inflation in Germany and France disappoints.
News from the Eurozone was weak yesterday with German inflation missing estimates as low oil prices continued to weigh; we do not envisage that lasting too long. France’s inflation numbers showed a similar outcome and we therefore have to think that there is a downside risk to the Eurozone number due at 10am.
The Day Ahead
We have a number of central bank speakers today although movements by Fed members may be somewhat blunted by their lack of visibility about Friday’s jobs report. The Bank of England is back in the market buying bonds today as well.
Have a great day.