Downbeat comments from two economical authorities drove markets yesterday causing risk appetite to be taken out of markets.

Firstly, as mentioned in yesterdays report, the IMF cut China’s growth forecast to 7.75% from 8% for this year. Then, yesterday morning, the Organisation for Economic Cooperation and Development (OECD) cut global growth forecasts for this year to 3.1% from 3.4% six months ago. The downbeat forecasts proved to be grim reading for higher yielding assets with stock markets falling across the globe and investors seeking refuge in the safety of the yen.

Downbeat comments from two economical authorities drove markets yesterday causing risk appetite to be taken out of markets.

Firstly, as mentioned in yesterdays report, the IMF cut China’s growth forecast to 7.75% from 8% for this year. Then, yesterday morning, the Organisation for Economic Cooperation and Development (OECD) cut global growth forecasts for this year to 3.1% from 3.4% six months ago. The downbeat forecasts proved to be grim reading for higher yielding assets with stock markets falling across the globe and investors seeking refuge in the safety of the yen.

Typically when we have seen a risk averse attitude from investors, it is the US dollar that would strength. However hawkish comments made by Bank of Japan Governor Haruhiko Kuroda, suggested that the BoJ may hold off from loosening monetary further for a while. As a result we saw profit taking on the US dollar, following its recent bout of strength, with investors taking positions in a ‘cheaper’ yen instead.

Also yesterday we had data from Germany reveal that the number of unemployed people in the country had increased to 21,000. However the actual unemployment rate fell in line with expectations at 6.9%. Data from Germany also revealed that their rate of inflation rose to 1.5%; more than the market was expecting. As a result we saw the euro supported with gains against most of its counterparts.

However it wasn’t all good news for the euro zone, with the OECD urging the European Central Bank to take more drastic measures, such as quantitative easing or negative interest rates, to implement growth in the euro area.

Sterling took a blow shortly after 11.00am yesterday after a report by the Confederation of British Industry revealed that its retail sales index fell to a 13 month low of -11 in May from a reading of -1 in April. However the fall in sterling following this announcement was short lived as direction on sterling currency pairs were swiftly dictated by news from its counterparts.

The other news from yesterday came from the Bank of Canada as Mark Carney, in his final policy meeting, left interest rates at 1% but reiterated his stance that interest rates could rise in the future should economic growth progress. Data on Friday is expected to show that GDP in Canada expanded to 2.3% in the first quarter, from a growth of 0.6% in the previous quarter.

Looking forward to today, the euro zone is set to come into focus with sentiment and confidence readings coming in from the services, industrial, consumer, business and economic sectors.  Later in the afternoon, the US will come into focus with the release of first quarter GDP figures, initial jobless claims, personal consumption expenditure index and pending home sales.

Good fundamental data from the US should provide impetus for the dollar to strengthen again. But a good performance from the yen again could hinder this.

Key Announcements:

10.00am – EUR – Economic Sentiment Indicator (May): Expected to improve to 89.

10.00am – EUR – Business Climate (May): Expected to improve to -0.87.

10.00am – EUR – Consumer Confidence (May): Expected to improve to -21.9.

10.00am – EUR – Industrial Confidence (May): Expected to improve to -13.1.

10.00am – EUR – Services Sentiment (May): Expected to improve to -10.8

13.30pm – USD – GDP Annualized (Q1): Expected to improve to 2.5%.

13.30pm – USD – Initial Jobless Claims (May 24): Expected to remain at 340,000.

13.30pm – USD – Personal Consumption Expenditures (Q1): Forecasted to increase to 0.9%.

15.00pm – USD – Pending Home Sales (YoY) (Apr): Expected to increase to 12.6%.