Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Sep 12 08 07:17 GMT |

Overview & economic commentary After yesterday's strong rise in the US$, to below 1.40 versus the euro for the first time since September 2007, attention will be on US economic indicators today. Much of the rise in the US currency has been put on the apparent view that US economic conditions, though poor, are better than in many other parts of the world, including the eurozone. A test of that will be the retail sales figures for August, as the boost in recent months has come from tax rebates. As those fade, US economic growth may fall back quite sharply. We look for a modest rise in sales, which will dovetail with a rise in Michigan consumer confidence, also out today, see chart. But producer price figures are also out and will highlight that price inflation remains a major concern, even though oil prices have fallen by nearly $45 since the peak of $148 a few months ago. And the rise in inventories may be less, signalling that growth may not be hit by a further bout of de-stocking. For the rest of the world, the French data will suggest that consumer price inflation may have peaked in the euro area. For Japan, the final gdp figures for Q2 will confirm that the economy shrank. The data for Q2 gdp was revised down to -0.7% from -0.6%.A further fall cannot yet be ruled for Q3, and if it occurred would mark a technical recession in the world's second largest economy after the US. Currency commentary A lively session o/n in fx markets saw profit taking in the dollar and some reprieve for equities as US indices closed in positive territory despite the troubles in the banking sector. This helped €/$ to bounce back above 1.40 from yesterday's low of 1.3882. £/$ firmed to above 1.76, and this means that €/£ remains offered below 0.7975. US PPI and retail sales could be market movers for the dollar this afternoon as participants track consumer spending trends for the middle part of Q3 and what this may imply for the Fed meeting next week and growing speculation of a Fed rate cut by year end. However, equities could have the final word if participants heed the warning signals at WaMu and Lehmans, two institutions where deteriorating credit ratings will keep the rumour mill going of possible takeovers and intervention by the Fed/Treasury. The yen is a touch weaker this morning following the downward revision of Q2 GDP to -0.7%. £/yen is bid above 189.50. Major data and events today French consumer prices (07:45) Jul -0.3% Y-O-Y +4.0% Aug (f'cast) +0.2% Y-O-Y +3.8% Median +0.1% Range -0.2%:+0.4% EU-15 industrial production (10:00) Jun zero Y-O-Y -0.5% Jul (f'cast) -0.3% Y-O-Y -1.1% Median -0.2% Range -0.8%:+0.2% US Producer prices (sa, prov) (13:30) Jul +1.2% Y-O-Y +9.8% Aug (f'cast) -0.2% Y-O-Y +10.5% Median -0.5% Range -1.2%:+0.3% US PPI core (sa, prov) (13:30) Jul +0.7% Y-O-Y +3.5% Aug (f'cast) +0.3% Y-O-Y +3.8% Median +0.2% Range -0.3%:+0.4% US Retail sales (advance) (13:30) Jul -0.1% Y-O-Y +4.5% Aug (f'cast) +0.2% Y-O-Y +4.8% Median +0.2% Range -0.5%:+0.7% US Retail sales, ex-autos (13:30) Jul +0.4% Y-O-Y +7.8% Aug (f'cast) +0.1% Y-O-Y +8.5% Median -0.2% Range -0.6%:+0.6% University of Michigan confidence (prel) (15:00) Aug 63.0 Sep (f'cast) 65.0 Median 64.0 Range 62.0:67.0 US Business inventories (15:00) Jul +0.7% Aug (f'cast) +0.5% Median +0.5% Range +0.2%:+0.9% Japan Real GDP (00:50) Q2 (prel) -0.6% Annualised -2.4% Q2 (final) -0.7% Annualised -3.0% Japan GDP deflator (00:50) Q2 (prel) -1.6% Q2 (final) -1.5% Japan Industrial output (05:30) Jul (prel) Y-O-Y +2.0% Jul (final) Y-O-Y +2.4% Chart: US retail sales ex-cars have held up this year despite a rise in consumer pessimism. Is this about to change as tax rebate comes to an end? Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. 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