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.


Global Update

  • 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.


Focus

  • Strategy: From failure to success in 24 hours, 7 August

  • US: Fed survey shows further easing of lending standards, 7 August