Daily Insight

The market remained relatively unchanged yesterday amid a sparse supply of economic data released both in Europe and the States. Although, the very recent positivity surrounding the Pound continued following a report on UK unemployment and average hourly earnings, which showed that the number of people out of work and claiming benefits unexpectedly fell for a second month in August. The claimant count fell by 3,900 compared with July to an annual rate of 950,100 with the unemployment rate unchanged at 3.0%, which will only add to speculation of another rate increase from the Bank of England before the turn of the year. In addition, growth in wages including bonuses grew at an annual rate of 4.4% in the 3 months to July, which was slightly ahead of expectations. The BoE will concentrate on the UK labour market as a good indication of future inflation trends and following a report on consumer prices this week, it looks increasingly likely that interest rates will rise to 5.0% by the end of 2006. The Pound has been creeping back towards the major resistance level at 1.4800 against the Euro and we may see further gains this morning following the release of the RICS house price index where prices are widely expected to remain relatively unchanged in August. While elsewhere, UK retail sales may of increased by 0.4% last month with the annual growth rate accelerating to 4.2% as consumer sentiment continues to look strong despite a surprise rise in UK rates last month.

There has been a fundamental lack of economic factors driving the Euro this week, which has left the single currency open to attack but there was some data released yesterday that put the Euro under further pressure against the dollar and particularly against the Pound as German and French inflation unexpectedly slowed in August following a sharp drop in oil prices in the last month. Consumer prices in Europe's largest economy rose 1.8% year-on-year in August after increasing to 2.1% in July while the inflation rate also fell in France, suggesting that growth in the European economy may not be accelerating as fast as previously anticipated. The European Central Bank are widely expected to raise interest rates from the current 3.0% in their next meeting scheduled for the first week in October and drop in consumer prices last month is unlikely to change that sentiment.

The Dollar has been under pressure over the last 24hrs following the worse than expected trade report in July, where the deficit in goods and services increased to a record level at $68 Billion. However, the Dollar remained relatively unchanged against the Pound at the close last night, hovering around 1.8750 following a lack of significant data released in the States. However, we may see some market volatility over the course of the day with U.S retail sales expected to increase by 1.0% excluding the sales of automobiles in August. Elsewhere, export prices are likely to increase by less than forecast following the overwhelming deficit in trade in July while import prices may exceed expectations, reaching an all time high in the previous month.

Data Released 13th September

UK 09:30 Retail Sales (August)
UK 00:01 RICS House Price Balance (August)

U.S 13:30 Retail Sales (August)
U.S 13:30 Export / Import Prices (August)
U.S 13:30 Initial Jobless Claims (w / e 9th September)
U.S 15:00 Business Inventories (July)

written by Adam Solomon