Market Movers ahead
US retail sales should strengthen after three months of weakness, while inflation should remain modest. The first regional PMIs will be watched closely for hints of a bottoming in the ISM.
Focus will continue to centre on the development in the sovereign bond markets in Italy and Spain. Investors are awaiting more info on when/whether Spain will request EFSF assistance and details on how the ECB could intervene. On the data front, we expect a drop of 0.1% in Q2 euro area GDP.
Japan Q2 GDP is expected to post the second straight increase in a row, rising 1.9% q/q annualized down from the hefty 4.7% in Q1. If we see the economy losing steam over the coming quarters, it could bring the Bank of Japan back into play.
The round of key Chinese July data disappointed with both industrial production growth and export data showing weakness. Inflation dropped to 1.8% y/y and overall this heightens the chance of additional Chinese stimuli over the coming months.
In the US, the Fed’s July Senior Loan Officer Survey showed a continued easing of lending standards and increased demand for loans. Hence credit growth and the banking sector remain positives for growth - a key difference to the Euro area. A sustained improvement in initial jobless claims suggest that the labour market has recovered somewhat from the weakness in Q2.
Following last week’s ECB meeting the key question is when and under which circumstances Spain will apply for aid from the ESFS. So far, Draghi has managed to contain short-term funding rates at tolerable levels for Spain, but if no progress towards a formal request for aid is seen, markets could lose patience.
Strategy: From failure to success in 24 hours, 7 August
US: Fed survey shows further easing of lending standards, 7 August