CMC Markets | Sep 16, 2014 07:52
Still clouded by the prospects of an independent Scotland, markets in Europe look set for a slightly higher start ahead of UK inflation, German investor confidence and an increase in telecoms merger activity.
The consumer price index, probably the most important data point for UK monetary policy is released today but even a surprise result is probably going to have a fairly short-lived impact on UK markets, just because nothing compares in importance to the Scottish referendum result on Friday.
The path in which the Bank of England treads will be heavily swayed by the Scottish vote so really no data is useful until the result is known. The Bank of England sets policy for the UK so if Scotland were no longer part of the UK it would be necessary to strip out any Scottish component from inflation numbers today and wage data tomorrow.
The UK August inflation rate is likely to have slowed to 1.5% year-over-year from 1.6% in July reflecting a drop in energy prices while the core rate is expected to remain at 1.8% with retail and producer prices also released.
Assuming a “no” vote in the referendum what could be seen is a kind of lag on the impact of this week’s UK economic data, with traders waiting on any possible fallout in sterling and UK stocks from the referendum before resuming business as normal on Monday next week.
All things equal, a drop in inflation today especially alongside a fall in wages tomorrow would ease pressure on the Bank of England over hiking rates and add more pressure onto an oversold British pound. It will be matter of judging the need for a rate hike as suggested by data against the committee’s hawkishness in tomorrow’s minutes for the chance of a change in expected timeline for the first rate hike.
German ZEW investor confidence is expected to fall for 9th successive month from 8.6 to 5 in September as unease over Ukraine and a slump in the European economy weighs on sentiment.
There has been an M&A pickup in the international telecoms markets with multinationals divvying up national markets between themselves. Orange (NYSE:ORAN) has offered to buy Jazztel (MADRID:JAZ) for $4.4b while Carlos Slim’s America Movil (NYSE:AMX)under local regulatory pressure is offering to sell Mexican assets to AT&T Inc (NYSE:T) which opens up more potential purchases in Europe.
EURUSD – In light trading, the euro came under mild pressure and fell back into its 100 pip range of the past few days. 1.29 remains the central level to move away from.
The currency has come out of oversold territory on the RSI opening up the potential for further declines. A re-test of the psychological al 1.30 seems likely before another move perhaps targeting 1.2750, the lows from April and July 2013.
GBPUSD – The pound had another low range day coming under slight pressure. 1.60 is the big psychological level which coincides with the 61.8% retracement of the rally since July 2013 and a move below there could spell a new era of weakness for sterling.
EURGBP – The euro sterling cross held 1.7940 again with a long-legged doji. The gap-fill suggests we may see another test of the low at 0.7890.
USDJPY – Dollar yen showed some strength trading back into 107.40 after falling early on. 107.50 is a potential sticking point from rising trendline connecting the May and Dec 2013 highs. The trend has been rampant and while overbought there is not yet any sign of momentum divergence. The former multi-year high at 105.45 could act as support on any larger pullbacks.
FTSE 100 is expected to open 4 points higher at 6,808
DAX is expected to open 1 point higher at 9,659
CAC 40 is expected to open 1 point higher at 4,429,
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Written By: CMC Markets
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