Sell off taking a breather after confirmation that a military strike on Syria is not imminent
European stock markets are trading higher during the early hours of trading. The indices have gapped up from their previous close and most of these gains have been filtered from the Asian and the US markets. Having said that, the volatility in the markets remains elevated, as the possibility of a military strike on Syria is still a concern for the investors. However, such a strike may not be an imminent, as it was before, because the UK Parliament last night failed to agree on a military strike on Syria. Nonetheless, we see that crude oil has started to tick up once again after falling from its weekly resistance and a rising crude oil prices are certainly creating a threat for the global recovery, and if such situation continues, it could be difficult for the biggest economy of the world, US, to start the tapering program.
Astonishing GDP forecast by US could fuel tapering further
There is no doubt that the US market did enjoy a bit of reprieve yesterday but the concern is that most of these gains were evaporated and the market failed to praise a good news when the US released much stronger forecast for the third quarter GDP to 2.5% while the forecast was 2.2%. The sharp increase could certainly give a strong signal that the US economy is growing at a much faster pace than anticipated and if such is the case we could possibly see a more aggressive move by Fed when it comes tapering during their meeting in September.
But, lets not forget that the recovery in the US markets is heavily based on the housing market and the data released Wednesday for pending home sales has without a doubt surprised the market when the final reading came in at -1.3% while the previous reading was 0.2%. Nonetheless, it is also a reality that the country’s deficit is also shrinking and the recent reading has shrunk to $34 billion from the previous reading of $44 billion.
More US economic data due today but main denominator will be in focus next week
Investors will turn their focus toward the latest economic data which is due today and will try to smell further evidence of tapering. Personal spending data is due at 12:30 GMT and the forecast is for 0.3% while the previous reading was 0.5%. Similarly, personal income data is also due at the same time and the forecast is for 0.3% while the previous reading was the same as well. Although, these seem to be a small matter for the investors, but these numbers should give us more insight about the US consumer. The main denominator for tapering- the unemployment data for August will be in focus next week which could certainly help Fed in giving a more precise statement about the timing and pace of this tapering.
Italian unemployment data may show increased while the EU unemployment rate may have fallen
The economic docket remains busy on the final trading of the week as Italian unemployment data and European unemployment rate will gauge most of the investor’s focus today. The business conditions remain extremely tough in Italy given the challenges such as red tape and low productivity, the country is facing. The forecast is for 12.1% while the previous reading was 11.9% however, I do still think that this number could be even higher as the political uncertainties in the country are still surrounding.
The unemployment rate for the euro zone is due at 09:00 GMT and the forecast is for 12.1% just slightly below the record number. However, there could be drop in this number because we have seen the Spanish unemployment rate falling modestly in recent economic data and this could certainly have a spill over effect on the final reading of the Eurozone.
The JPY is reversing its trend against the dollar while all other majors are on a flat line and in a constant tug war in determining their trend against the dollar on an intra day basis.