Anika Begay
A look at the day ahead in European and global markets by Kevin Buckland
This week and month have once again proven that data is key, with investors scanning recent economic releases for clues about the likely pace of interest rate cuts at the Federal Reserve and the Bank of England.
Potential flashpoints for monetary policy expectations loom over currency markets on Thursday, when U.S. retail sales and Britain’s GDP are due to be released. The dollar and sterling could move sharply in either direction, depending on the results.
Moderate U.S. inflation data this week has boosted market confidence that the Fed will lower borrowing costs in September for the first time in 4 1/2 years, but debate remains over whether policymakers will opt for a massive 50 basis point cut or a more standard quarter-point cut.
But views can change quickly. The estimated probability of a 50-bp cut has fallen to 36%, down from 50% just a day earlier, after the mild but potentially stiff CPI. It had risen to 71% earlier this month, when surprisingly weak U.S. payrolls data roiled global markets across asset classes.
Today, it is retail sales that are making the difference, a key indicator when you consider that consumption accounts for about two-thirds of U.S. economic growth.
We’ll also hear from some regional Fed officials, with St. Louis President Alberto Musalem and Philly boss Patrick Harker on the speaker list.
The dollar fell overnight against the euro to its lowest since late last year. The pound was even weaker, falling about 0.5% against the European common currency.
The culprit was a weaker-than-expected UK consumer inflation figure, which fueled speculation of faster and deeper rate cuts by the BoE.
GDP estimates and a host of other data, including industrial production, will be released later in the day.
Traders are divided over the possibility of another rate cut by the BoE within a month, after a cautious decision earlier this month.
In the more immediate future, Norges Bank announces its monetary policy today, and officials are expected to postpone any easing, as they fear it could further weaken the Norwegian krone.
Key developments that could impact markets on Thursday:
-UK GDP, Services, Industrial Production, Manufacturing Production
– Norges Bank policy decision
– U.S. retail sales, industrial production, initial jobless claims, Philadelphia Fed business index
(by Kevin Buckland; revised by Edmund Klamann)
