- Japanese Yen: Strong rebound in spending, production
- Euro: German retail sales another weight on growth
- Pound: Northern Rock felt in consumer confidence survey
- USD: Looking ahead to spending and Fed chatter
The economic calendar was holding back for an end-of-the-week deluge. The fundamental action began shortly after the FX market rolled over to the Asian session. Yen traders were met with the usual end of the month spending and inflation mix. Keeping a mind on the difficulties lying ahead for any hawkish BoJ policy makers, the price gauges were firmly set in their deflationary trends. The core CPI number marked its eighth consecutive month below water. On the other hand, an economic glow was radiating from the consumer and business sectors. Despite an unexpected rebound in the jobless rate from a nine-year low, consumer spending grew a greater than expected 1.6 percent over the year through August leveraging the biggest month over month jump in retail sales in at least seven years. Industrial production similarly impressed with the biggest increase in activity in four-years. However, this data would not leave its imprint in USDJPY charts since the improvements could be tied directly to a recovery from rainy weather and earthquakes in July. What?s more, with the Tankan numbers due first thing next week, few trades wanted to act too hastily before big event risk.
European currencies were incorporating their own fundamentals. German retail sales headlined for the euro. August receipts dropped 1.4 percent despite a pick up in consumer confidence and 14-year low in unemployment through the same period. This was followed by a slew of Euro-Zone sector sentiment reports for September. Every one of these indicators (with special note made of consumer and business confidence) fell short of expectations while hitting multi-month lows. Clearly the August credit crunch is still depressing optimism despite a visible retreat in market volatility and thaw in lending. If these conditions persist, the euro will look increasingly vulnerable. Should Trichet and his crew give no sign of further hikes next week, the currency may run out of steam.
Money market issues were also proving problematic to sentiment in the UK. Though its impact was dulled by an early leak, the GfK consumer confidence survey slipped to a six-month low. A dip was fully expected considering the media-fueled panic surrounding Northern Rock?s financial difficulties. The firm was still making headlines today. The Guardian ran an article saying the BBA warned the BoE of the impending money market cave in months before it happened. Politicians, policy members and bank customers will continue to play this blame game until the problems are worked through. And, considering reports today that Northern Rock borrowed some 8 billion pounds from the BoE so far - nearly one-third the value of its retail deposits - that day may be some ways off.
Looking ahead to the US session, there is a full docket of data left to fire up volatility one last time before liquidity drains into the weekend. The Canadian dollar has returned to parity in preparation of the July GDP report. In the US, spending and income data will be the headline data for the session; but a collection of Fed speeches may prove the top market mover.