Today, financial markets are again quite quiet. The sense of risk remains positive, and comments from China help maintain that feeling. Chinese Prime Minister Li said this morning that “trade negotiations will make progress”, and they also removed investment quotas. An interesting article today was a Reuters report suggesting that the Bank of Japan is now more open to discussing additional monetary easing next week. That JPY should keep it up for a while.
The biggest event today, however, is the report on employment and earnings from Great Britain. The while 3M / Y. Employment and wages in particular continue to surprise markets forever as they continue to grow, at a time when the rest of the economy is heading towards recession. Although the UK might narrowly avoid a recession now after some positive figures we saw this week, it is still too early to tell.
European session
- French and Italian industrial production – Last month’s report showed a sharp drop in industrial production in France of 2.3% in June. Although production was expected to become positive in July and increase by 0.5%, it missed expectations and instead rose by only 0.3%. In Italy, industrial production also fell by 0.2% in June, as shown by last month’s report, which was revised lower to -0.3% today. Today’s report was expected to show another 0.1% decline for June, but the decline was larger, by 0.7%. Production continues to suffer in Europe.
- UK Employment Report – The ILO unemployment rate was expected to remain unchanged, but reached 3.8% compared to the expected 3.9% earlier. The change in unemployment claims in August amounted to 28.2 thousand. The previous number was 28.0 thousand, which was revised to 19.8 thousand. The change in employment came to 31 thousand compared to the expected 55 thousand, compared to 115 thousand earlier. Employment is still quite strong in the UK.
- UK Earnings Report – The average earnings index was expected to remain unchanged at 3.7% today. But the average wage index is another jump to 4% for July. The June issue was also revised higher from 3.7% to 3.8%. Average weekly earnings without bonuses also rose to 3.8% from 3.7% 3 m / y as expected, but previously hit 3.9%. Annual earnings amounted to + 4.2%, which is the highest number since February 2010. Realistically, the average weekly earnings are + 2.1% EUR 3 million per year, which is the strongest reading since September 2015.
- There are no alternatives to stopping without the Irish border – Irish Minister for European Affairs Helen McEntee commented this morning, saying they still have no real evidence of stopping alternatives. The situation in Brexit is changing every day, but the UK has had no proposal to stop just for Northern Ireland. So there is no hope of an agreement then.
- No fiscal stimulus for Scholz – German Finance Minister Olaf Scholz said earlier today that they are doing what is needed without a new debt. The 2020 budget is expansive, which will deal with major challenges, including global trade disputes. Germany is not in crisis, it has a solid fiscal position. We will react if there is a crisis.
American session
- Carney doesn’t sound too worried – Bank of England President Mark Carney commented a moment ago that the BOE doesn’t see big imbalances in the economy that would normally cause a slowdown. BOE has the tools to address the economic slowdown. Economies have fiscal space to cope with the recession, but it is not unlimited. We are approaching a global liquidity trap.
- Canadian Housing Initiatives and Building Permits – The start of housing increased by 222,000 in July in Canada, as last month’s report showed. The number for August was expected to cool to 213 thousand, but they further increased to 227 thousand. In the last two readings, building permits recorded two very bad months, which decreased by 13.0% in May and by 3.7% in June. June was revised today to -3.1%. Building permits were expected to become positive in July and increase by 2.1%, but today we recorded a growth of 3.0%, beating expectations.
- OPEC’s Barkindo sounds optimistic on oil – the OPEC secretary general has just said they have been very conservative with demand forecasts. The oil market is not fundamentally driven. He does not see a recession on the horizon and said that the American economy is doing well.
He trades in sight
Bearish Eur/ Gbp
- The trend has shifted to bearish
- The withdrawal of the council is over earlier today
- 20 SMA pushes the price lower
- 20 SMA provides resistance once again as the downward trend has continued
EUR / GBP has been in a strong bullish trend since early May, but in early August the trend shifted to bearish as the euro stretched in decline as the GBP turned higher. 20 SMA (gray) initially offered resistance, but the trend slowed in the following weeks and larger MAs took over the job. Although the downward trend resumed last week, the 20 SMA seems to have turned into resistance again, killing more and pushing the price lower. So the pressure stays on the downside of this pair.
In conclusion
The GBP turned around again today, after we saw some positive production data yesterday and a big report on employment and earnings today. Brexit could be postponed again, which means we could witness a bullish phase in GBP pairs in the coming weeks.
