Daily Market Report 14/08/2013

The US dollar continued to strengthen yesterday after retail sales rose for a fourth month in a row and following comments made by Federal Reserve Bank of Atlanta President Dennis Lockhart.

Despite missing expectations of a rise of 0.3%, retail sales rose by 0.2% in July suggesting that US consumers are overcoming the fiscal tightening from earlier this year. The data also shows that consumer spending, which makes up 70% of the US economy, rose at its fastest pace in seven months, providing a stronger case for the Fed to reduce stimulus.

Later in the afternoon, despite stating that employment still remains weak, Fed Bank of Atlanta President Lockhart wouldn’t rule out the Fed reducing stimulus in September.

Ahead of key unemployment figures this morning as well as the release of the latest Bank of England minutes; inflation in the UK fell to 2.8% in July, in line with expectations; which should ease the squeeze on consumer purchasing power.

Industrial production in the euro zone rose to 0.7% in June and the latest ZEW survey confirmed that economic sentiment for the euro zone rose higher than expectation in July. The data is well timed and lends to expectations today that the euro zone has exited a six quarter recession. However with renewed talk of Greece requiring another bailout we could well see a subdued reaction by the markets to support euro further.

Data from Germany and France has shown that growth in the two countries has exceeded expectations by growing by 0.9% and 0.5% respectively in the second quarter. There has been limited reaction so far to this news as investors will no doubt be waiting for the second quarter figures to come out from the euro zone as a collective.

Key Announcements:

9.30am – GBP – Bank of England Minutes.

9.30am – GBP – Claimant Count Change (Jul): Expected to show a fall of 15,000.

9.30am – GBP – ILO Unemployment Rate (Jun): Expected to remain at 7.8%.

10.00am – EUR – Gross Domestic Product (QoQ) (Q2): Expected to improve to 0.2%.

13.30pm – USD – Producer Price Index (Jul): Expected to fall to 2.4%.

18.20pm – USD – Fed’s Bullards Speech