UK CPI Ticks Higher
Following the news that the German constitutional court has been asked to refer the ESM treaty to the European Court of Justice, Reuters quoted a spokesperson from the constitutional court as saying that it sees no reason to delay the Sept 12 verdict, removing any fears that the process may be postponed. The EUR stages a very brief rally on this headline, though macro data releases were, for once, the main driver. GDP and CPI numbers were released in Europe. Eurozone Q2 GDP came in at -0.2% q/q and -0.4 y/y, as expected, vs unch q/q and -0.1 y/y in Q1, despite Germany and France outperformance relative to expectations. The German ZEW current situation number fell to 18.2, above expectations but below the July print of 21.1. The ZEW commented that the decline in its indicator signaled that analysts expected the German economy to slow over the next six months and the export sector may be particularly affected. In the UK, July CPI rose to +2.6% y/y vs cons 2.3%. UBS economics notes that it’s important to place today’s upside surprise in context: the July print follows at least a couple of months where the data has surprised materially to the downside. The July numbers were lifted by exceptionally strong airfares (up 21.7% on the month) and also because clothing and footwear prices did not fall as much as they usually do in July – sales started a month earlier this time. Nonetheless, today’s upside surprise will provide ammunition to the likes of Spencer Dale who believe that inflation will be sticky. The euro has traded in a fairly narrow range in European trading and we are cautious of extreme positioning which may limit any immediate downside in the absence of any major EUR-negative news releases. Fed Chair Bernanke’s scheduled appearance at Jackson Hole is only just over two weeks away. Then on Sept. 6, further details on the ECB’s new framework for open market operations is likely to be unveiled even if actual bond purchases themselves are very unlikely to begin so soon. In the US, the selection of Paul Ryan as the Republican Vice-Presidential candidate by Mitt Romney has stirred up the election race. Ryan, a fiscal conservative, is known for his proposals to drastically cut government spending and his support for revisions to the Federal Reserve Act so that the Fed’s mandate is narrowed to price stability only. The elections are still three months away however, and retail sales due later today is a far more immediate concern – our US economists look for a modest rebound, but still shy of what the consensus expects. Ahead today US retail sales will be the crucial driver of risk appetite.
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