In the US, consumer confidence from University of Michigan for September is released. The index nose-dived in August but the drop has not been seen in other consumer surveys so it seems likely it will rebound a bit. Also keep an eye on the inflation expectations index. In the euro area, final CPI numbers for August are released. They will bring more details on the sub components and hence what drove the sharp increase in core inflation to 1.6% y/y from 0.7%y/y. Markets will also keep an eye on the development in the problems for China's second largest developer Evergrande and possible contagion to other markets.
US consumers :Retail sales ticked in strong yesterday with the control group (which excludes autos, gas and food services) at 2.5% m/m. Headline sales were not as strong, partly because there was no growth at all in "food services" (restaurants). Markets reacted by sending US yields higher to the levels from early this week and with broad USD strengthening.
Chinese real estate market: Trading of Evergrande bonds was halted and we see rising contagion to other big developers whose shares are diving. Home sales dropped 20% y/y in August following China's tightening measures, which have added to the challenges for developers already feeling the heat from tighter regulation last year. So far there is limited spill-over to developed markets but it bears watching.
Equities: Equities lower yesterday although the European session was relatively strong and hence European stocks outperformed rest of the world yesterday. We have seen a lot of all-time highs the last 10 days and the risk appetite in equity markets has faded somewhat. This is well in line with what we expect for the rest of the year where some of the strong tailwinds equities have had the last 16 months are fading. No huge style and sector difference yesterday but consumer discretionary led on retailer and homebuilder strength while materials was the worst performer as industrial metals softened. In the US, equities were mostly lower, Dow -0.2%, S&P 500 -0.2%, Nasdaq +0.1% and Russell 2000 -0.1%. Markets are mixed in Asia this morning where the Evergrande story continues to unfold. European futures are 0.5% higher while US futures are only a notch higher.
EUR: Hawks causing trouble?
Overnight we have seen the FT report an unpublished, internal study at the ECB suggesting that inflation could sustainably hit 2% by 2025, such that the ECB could start raising rates in 2023. The ECB has said the article is inaccurate. The move smacks of some of the ECB hawks trying to open up the debate on monetary normalization. The EUR has not reacted to the story, but the story does serve as a reminder that dissension could be growing and that over coming months Eurozone FX and rates markets could become more sensitive to any stronger growth or higher inflation data.
EUR/USD may trade a 1.1750-1.1800 range today. Elsewhere, it is interesting to see EUR/CHF move back above 1.09. One can perhaps argue that a higher EUR/CHF will be a key outcome of this dissent within the ECB. If there is any central bank that can out-dove the ECB, it is the SNB.