Market Drivers September 10, 2019
UK Labor beats
Chinese inflation a bit hotter
Nikkei 0.35% Dax -0.33%
UST 10Y 1.62%
Europe and Asia:
CNY CPI 2.8% vs. 2.7%
GBP UK Labor 3.8% vs. 3.9%
GBP UK Wages 3.8% vs. 3.7%
CAD Housing Starts 8:15
FX markets were quiet on the second trading day of the week with little fresh newsflow to move currencies as the Brexit drama took a pause while econ data was limited to UK labor releases.
UK employment numbers were actually better than expected with wages rising at the fastest pace since June 2008. Although Brexit turmoil has clearly affected business sentiment and spending the slowdown has not trickled down to the labor market. Nevertheless, labor data tends to be the most sticky and lagging of the macro indicators so the true impact of Brexit could surface in a few months.
In the meantime, the current backdrop remains supportive for Mr.Johnson as it shows that the labor market is resilient and makes his political case for hard Brexit withdrawal more palatable to the general population.
Elsewhere the flows were quiet with USDJPY coming off the session highs to trade at 107.30. The pair made fresh multi-week highs at the start of Asia trade but ran out of gas ahead of the 107.50 barrier. Still, as we noted earlier the sentiment background for the pair has improved markedly as the thaw in US-China negotiations has provided a sigh of relief for risk flows while the macro data in the US has remained steady suggesting that growth has slowed but has not turned negative.
This Friday’s US Retail Sales data will be key to further progress for USDJPY. If the US consumer confirms the steadiness of US growth the pair could take out the 108.00 figure by the end of the week.
The marquee event of the week, however, will be the ECB presser with markets waiting to see what kind of stimulus Mr. Draghi will bring. The manufacturing data out of Europe continues to look horrid with Italian Industrial Production production declining to -0.7% from -.0.1% eyed while French IP growth rising only at 0.3% vs. 0.5% eyed. The EURUSD remains contained between the 1.1100 and 1.0900 zone for now, but yesterday’s rally looks short-lived especially in light of the fact that there is not fiscal response coming from Germany just yet. The pair is back below the 1.1050 level and could test support at 1.1000 as the day proceeds.