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Optimism aplenty but no real action

Tapering talk at the ECB (EUR)

The bad news on Tuesday was that sterling (GBP) brought up the rear of the major currency field. The slightly better news was that it was unchanged against the safe-haven CHF and JPY, as well as the USD. It was only 0.3% (two thirds of a cent) adrift from the “risky” AUD and NZD in the lead. The pound’s average loss was an insignificant 0.1%.

Clearly, it was not a day of definitive trends or bold movements. Yet nor was the day free of provocation, especially as far as the euro (EUR) was concerned. Inflation and monetary policy were very much in focus. Eurostat reported that consumer prices rose 3% in the year to August, lifting inflation from July’s 2.2% to a 13-year high. There was no reaction from the euro.

Nor could investors get excited by hawkish comments from two European Central Bank Governing Council members. Dutch central bank governor Klaas Knot said the European inflation outlook should now support a decision to end QE asset purchases early next year. His Austrian opposite number, Robert Holzmann, had said much the same thing earlier in the day. Although they are only two among many on the council, other members will also have noticed that inflation is now 50% above its 2% target. The EUR is very slightly firmer on the day but its strength did not obviously result from the two men’s comments, or from the inflation figure itself.

 

Solid statistics

Most of Tuesday’s other ecostats were decently robust without providing any reason for elation. US consumer confidence, arguably the statistic with the most relevance to Federal Reserve policy-making, fell to its lowest level since January.

The Conference Board reported an 11-point decline in its consumer confidence index (USD). “Concerns about the Delta variant—and, to a lesser degree, rising gas and food prices—resulted in a less favorable view of current economic conditions and short-term growth prospects”. Nevertheless, the index is still within shouting distance of the 119 – 139 range it occupied for three years immediately prior to the pandemic. US house prices continued to push ahead, with annual increases of 17.4% and 19.1% reported by FHFA and S&P.

The Canadian gross domestic product data (CAD) for the second quarter were less constructive. Analysts had told investors to expect annualised growth of 2.5% in Q2. What they got was a 1.1% annualised shrinkage, equivalent to a quarter-on-quarter contraction of 0.3%. Although the news was of no help whatsoever to the Loonie (CAD) it was not terminal: the CAD is on average unchanged on the day.

 

PMIs all round

Today marks the beginning of the monthly PMI-fest, with readings mostly from the manufacturing sector. Numbers already released showed modest growth in Australia (AUD) and Japan (JPY), while Chinese manufacturing activity (CNY) slowed.

Europe and North America are expected to deliver readings in the high 50s or low 60s. Eurozone manufacturing (EUR) as a whole is pencilled in at 61.5, with Britain (GBP) not too far behind at 60.1. The non-PMI ecostats will include Eurozone unemployment (EUR) and ADP’s employment change number (USD).

Two ecostats already released relate to Australian growth in the second quarter (AUD) and UK house prices. Australian GDP expanded by 0.7% in Q2, and by 1.4% in the 12 months to end-June. Nationwide said British house prices went up 11% in the year to August, taking the national average to £248,857.

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