Daily Market Report 23/08/2013

The euro came into focus yesterday as service and manufacturing PMI surpassed expectations and expanded even further in August.

As a result, traders drove the euro higher against most of its counterparts as the data provides further evidence of the economy in the euro zone recovering, albeit at a moderate pace and provides hope that the growth in the second quarter was not a one off. The news unsurprisingly dampened demand for safe haven assets with German 10 year bond yields rising to 1.937%, the highest since March 2012.

However it wasn’t all good news for the euro zone as Jeroen Dijsselbloem, who leads the Eurogroup of euro zone finance ministers, conceded that Greece may well need another bailout next year; echoing comments made last week by Wolfgang Schaeuble, the German finance minister.

The UK also enjoyed some good news, but unfortunately with no impact on strengthening the pound. UK car manufacturing grew by 7% in July compared with a year earlier.  The data follows the wider trend of improving data from the UK and with the euro zone also showing signs of recovery; early signs are we should continue to see production increase for the rest of the year.

The US, overall, experienced some positive data yesterday, supporting the US dollar further following Wednesdays minutes. To start, although US jobless claims rose by 13,000 this week to 336,000 from last week; the monthly average of those filing for jobless claims fell to a 7 year low, indicating a recovering job market.

US Markit manufacturing PMI exceeded expectations rising to 53.9 in August and US house prices climbed to 0.7% in June, surpassing a 0.6% rise that the market was expecting.

Elsewhere the Canadian dollar continued to weaken as retail sales fell a lot more than markets were anticipating, adding to further signs of a slowdown in the Canadian economy. As a result GBPCAD is now trading at a three year high.

Fears of a retraction of monetary stimulus in the US hung over the Indian rupee in early morning trade, with the rupee reaching a new record low. But as the day progressed, the currency clawed back some of those losses as the Reserve Bank of India signaled their intention to focus on financial stability to counter the potential measures that the Federal Reserve may action themselves. Time will tell how effective this would be but in the meantime, the weakness in the INR seems to be settling down.

German GDP figures have been released this morning and have shown that the German economy expanded even further in the second quarter; but surprisingly there has been very limited impact on the euro, suggesting that the news was already priced in.

Data from the UK this morning has shown an upward revision for second quarter GDP figures for the UK. The previous forecasts suggest a 0.6% expansion and the latest figures show a rise to 0.7%, suggesting once again that the recovery for the UK is well under way.

Key Announcements:

13.30pm – CAD – Consumer Price Index (Jul): Forecasted to increase to 1.4%.

15.00pm – EUR – Consumer Confidence (Aug): Forecasted to improve to -16.5.

15.00pm – USD – New Home Sales (Jul): Expected to fall to 485,000