The US Dollar raced higher to start the trading week as stocks sold off in Asian trading and US equity index futures pointed to a sharply lower open on Wall St in the day ahead. New Zealand Retail Sales unexpectedly fell in July. Swiss PPI and Euro Zone employment and industrial production figures are on tap ahead.
[U][B]Key Overnight Developments[/B][/U]
[B]• New Zealand Retail Sales Unexpectedly Drop in July as Unemployment Rises
• US Dollar Surges As Stocks Drop in Asian Trading, Boosting Demand for Safety[/B]
[U][B]
Critical Levels[/B][/U]
The [B]US Dollar[/B] pummeled both the [B]Euro[/B] and the [B]British Pound[/B] to start the trading week, with both currencies falling as much as -0.6% against the greenback as stocks sold off in Asian trading and US equity index futures pointed to a sharply lower open on Wall St in the day ahead. The [B]MSCI Asia Pacific[/B] Index slid -1.5% while futures tracking the [B]Dow Jones Industrial Average[/B] suggested US issues would open down 1.6%.
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[B]Asia Session Highlights[/B][/U]
[B]New Zealand[/B] [B]Retail Sales[/B] unexpectedly fell in July, shrinking -0.5% and disappointing expectations of a 0.4% result. The previous month’s result was also revised lower, showing sales fell -0.1% rather than grew by the same magnitude as was originally reported. The release reinforces last week’s comments from Reserve Bank of New Zealand Governor Alan Bollard, who said the medium term outlook for retail spending “remains weak” as unemployment continues to rise. Indeed, the jobless rate hit a 9-year high of 6% in the second quarter and central bank expects it to surpass 7% by the end of next year. Bollard also linked continued turmoil in the labor market to the New Zealand Dollar, saying the stronger currency puts business profits “under pressure” and warning that “If the exchange rate were to continue its recent appreciation…the sustainability of the present recovery will be brought into question.”
[U][B]Euro Session: What to Expect[/B]
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The annualized pace of contraction in [B]Switzerland’s Producer and Import Prices[/B] is expected to have slowed to -5.5% in August from the record-low -6.1% set in July. The outcome follows a similar moderation in consumer prices during the same period and foreshadows slightly better results for the headline inflation gauge in the months ahead. However, as we detailed in our weekly Swiss Franc forecast, it is much too early to say that the specter of deflation has dissipated, so the Swiss National Bank is unlikely to abandon their commitment to direct intervention into the currency markets to keep down the value of the Franc when monetary policy is announced later this week.
The second-quarter [B]Euro Zone Employment[/B] report is unlikely to prove market-moving: traders have likely priced in the state of the market already having seen the monthly unemployment gauge rising steadily higher since June of last year, most recently hitting a record 9.5%. Separately, [B]Industrial Production[/B] is expected to shrink -16.7% in the year to July, extending the moderation in the pace of contraction that began after the record -21.2% annualized drop in April driven by both domestic and global fiscal stimulus as well as the inventory restocking cycle. However, a downside surprise may be in the cards after German industrial production unexpectedly fell during the same period.
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