Inflation pressures take hold & US employment data ahead
BBC website headline this morning is: Sri Lanka in economic emergency as food prices soar .. “The government says it will seize food stocks and set prices to contain inflation”. https://www.bbc.com/news/business-58390292
Friday is a big day for USD data, and the OPEC+ meeting this week adds to the excitement!
EURO: Next week’s Inflation data will be key – The ECB recently changed their guidance, saying they would allow inflation to overshoot the short-term target of 2%. Barclays suggest a peak in EU Inflation In November this year, but followed by a rapid decline throughout 2022. This brief cycle of inflationary price pressures may NOT be enough to light the fire of the EU economy, which is why next week’s data will be key.
There have been speeches that show ECB members would support some tapering of bond buying, with ‘preliminary’ inflation hitting 3% .. but markets are not convinced there is enough follow-through.
This morning: In an interview with Bloomberg on Wednesday, "wage developments and unit labour costs which determine the core of inflation do not show the same volatility as headline inflation," ECB policymaker Yannis Stournaras said. Stournaras further noted that he would advise caution regarding the course of inflation relative to the ECB's medium-term target.
USD: A record weakening of Consumer Confidence yesterday suggests that as stimulus cheques stop and Covid infections start to soar, the US consumer’s confidence is starting to wane. The USD was weakened by the Fed Chair Powell last week when he said that the US would taper bond buying, but would not raise rates to combat inflation.
There are no a few pointers towards USD weakness in the medium-term. ADP employment data and the all-important NON-FARM Payrolls on Friday this week will also be watched.
GBP: Following from our previous RedFX Update, UK data is still showing pressures from global supply chains, price pressures etc. HIS manufacturing data was released this morning and quoted:
“Severe disruptions to supply chains and raw material shortages eroded the growth momentum of UK manufacturing in August.”
“Although solid gains in output and new orders were achieved, companies reported that production, delivery and distribution schedules were experiencing substantial delays.”
GBP has traded weaker, but remains stuck at the bottom of ranges vs EUR and USD. GBP/USD under 1.3730 for a few days wight herald a big dip down to 1.3600
China: After a stellar rebound, Chinese data showed a slowdown, with manufacturing PMI actually showing a contraction in the sector. Although this can be due to localised Covid restrictions, it is unusual, given the amount of global demand for Chinese products at the moment.
AUD: Better than expected GDP data overnight boosted the AUD – the economy expanded at 0.7% vs 0.5% expected in the previous 3months.