The US data in line, but key reports ahead

The US data released yesterday did not disappoint, leaving room for markets to recover somewhat after few weeks of declines. The core sales was up 0,3% m/m as expected and the core PPI (0,2% m/m) was in line as well. However, as we have already stated consumer spending is not the major worry at the moment. The concerns are that too high commodity prices might lead (have led?) to a stall in activity with negative consequences for future output, investments and employment. Therefore, today’s releases: output and NY Fed will be much more important overshadowing normally crucial CPI release.

Schedule for Greek aid still uncertain

European politicians seem to agree that the extra aid for Greece is necessary and Oli Rehn said yesterday that a solution might be closer than many anticipate, however, the final dispute is still not resolved. Germans still want a private sector to participate in a solution but the ECB and France are afraid of market consequences and for a reason: Moody’s said today that three major French banks have their ratings in a jeopardy. Keeping in mind a clear conflict of interests between French banks and German taxpayers investors will look forward to a Friday’s meeting between Sarkozy and Merkel in Berlin. Should they fail to reach an agreement, the final solution might be delayed renewing market concerns.

The euro, sort of, anticipated those problems giving back previous gains against the dollar. Technically, the pair broke down through a lower limit of a flag formation (that we described yesterday), confirming that advances within the flag were just a part of a correction. The nearest support and the first target for the bears is at 1,4320 but if what we are seeing is a wave C of a larger correction, the pair may dive much deeper.

Events to watch – US data, labor market in UK, fuel inventories  

As already mentioned, the key data for today will be the NY Fed (8.30 ET, 14.30 CET, consensus 12,5-13 pts.) and the US output (9.15 ET, 15.15 CET, consensus +0,2-0,3% m/m). Inflation should be market neutral, unless we see a large surprise (8.30 ET, 14.30 CET, consensus +0,1-0,2% m/m for headline and 0,2% m/m for the core) – especially an upside surprise would hurt market sentiment. On top of this we’ll have labor market data in UK, output in the zone and fuel inventory data in US.      

Przemysław Kwiecień PhD, Chief Economist

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