Morning Forex Fundamental

EUR

'Food commodity prices represent the key upside risk to consumer prices, both in the euro zone and beyond' - Catherine Colebrook, a BNP Paribas euro-zone economist

Euro-area consumer prices stable at 2.4%

Impact high

Consumer prices in the Eurozone were unchanged in July, said the European statistics office on Thursday. Year-on-year inflation remained at 2.4 per cent, above the ECB's target of 2 per cent. Month-on-month prices fell 0.5 per cent, after declining 0.1 per cent in June.

'Looking ahead, there could be some upward pressure, and real incomes could be squeezed further,' said Hetal Mehta, European economist for Legal & General investment management.

'Food commodity prices represent the key upside risk to consumer prices, both in the euro zone and beyond,' said Catherine Colebrook, a BNP Paribas euro-zone economist.

The Stoxx Europe 600 Index gained 0.32 per cent to 271.22. Germany's DAX Index advanced 0.71 per cent and France's CAC 40 Index edged higher 0.91 per cent.

USD

'It [unemployment claims data] is certainly further evidence the labor market doesn't look like it's in danger of falling off a cliff' - Jeremy Lawson, senior U.S. economist at BNP Paribas

U.S. jobless claims rise modestly; housing starts fall 1.1%

Impact High

The number of Americans claiming for unemployment benefits rose slightly to 366,000 in the week ended August 11 from an upwardly revised 364,000 the week before, said the Department of Labor on Thursday.

'It's certainly further evidence the labor market doesn't look like it's in danger of falling off a cliff,' said Jeremy Lawson, senior U.S. economist at BNP Paribas in New York. 'At the same time, the hiring rate is still fairly soft.'

Also Thursday, a report showed housing starts retreated in July to an annualized rate of 746,000, down from 754,000 in June, the highest reading in almost four years.

'The housing market is continuing to heal and should be a major part of growth in the quarters ahead,' wrote Joel Naroff, president of Naroff Economic Advisors.

GBP

'… the initial estimate of GDP will be revised up in next week's second estimate' - Vicky Redwood at Capital Economics

U.K retails sales rise 0.3% from June

Impact High

U.K. retail sales rose by 0.3 per cent in July and the Office for National Statistics revised June's sales to 0.8 per cent from 0.1 per cent. Retail sales volumes rose 2.8 per cent compared to the same period the previous year.

'The latest UK retail sales figures are pretty good - as much for the upward revisions to past months as for July's figure,' said Vicky Redwood at Capital Economics.

'The fall in sales in Q2 [second quarter] overall was revised from 0.7% to 0.3%, adding to other evidence suggesting that the initial estimate of GDP will be revised up in next week's second estimate.'

'What's more, sales should maintain this recent positive momentum in the near term as the boost from the Olympics comes through.'

CHF

'It seems that investors are comfortable with building a degree of risk in anticipation of stimulus measures from the Federal Reserve and the European Central Bank' - Ishaq Siddiqi, a market strategist at ETX Capital

Swiss stocks extended gains on Thursday

Impact: Medium

Swiss stocks gained on Thursday on better than expected U.K. retail sales and U.S. building permits data.

The Swiss blue-chip index SMI, a measure of the largest and most actively traded companies climbed 0.10%, or 6.56, to 6,518.43. The broader Swiss Performance Index advanced 0.15%, or 8.74 points, to 6,020.56.

'It seems that investors are comfortable with building a degree of risk in anticipation of stimulus measures from the Federal Reserve and the European Central Bank,' said Ishaq Siddiqi, a market strategist at ETX Capital in London.

'The weaker the data, the more likely we are to see a response from the Fed.'

JPY

'We're starting to see the early signs of some real progress being made in the euro area' - Andrew Salter, a currency strategist at Sydney-based Australia & New Zealand Banking Group Ltd.

Japanese stocks rose further on Friday

Impact: Medium

Japanese stocks advanced on Friday after German Chancellor Angela Merkel signalled support for a European Central Bank plan to combat the debt crisis.

The Nikkei 225 Stock Average gained 0.77 per cent, or 69.74 points, to 9,162.50. The broader Topix Index gained 0.88 per cent, or 6.69, to 765.81.

'We're starting to see the early signs of some real progress being made in the euro area,' said Andrew Salter, a currency strategist at Sydney-based Australia & New Zealand Banking Group Ltd.

'We do see the euro rebounding modestly over the next few months.'

Press Review

Europe

The European Central Bank said they may 'undertake outright market operations', as soon as European governments will activate the region's rescue funds to buy government bonds. The ECB kept its key lending rate at 0.75%.

Spanish and Italian bonds jumped, pushing Spain's benchmark 10-year yield down to 6.82%, and Italy's 10-year debt yields to 6.06%.

Shares rise as Merkel remarks soothe nerves

http://www.reuters.com/article/2012/08/17/us-markets-global-idUSBRE86F00620120817

Shares firmed on Friday as German Chancellor Angela Merkel voiced support for the European Central Bank's efforts to contain the debt crisis in the euro zone, soothing investor nerves and prompting them to shift money to riskier assets.

Retail sales rise points to stronger UK economy

http://www.bbc.co.uk/news/business-19280003

Better-than-expected retail sales figures have helped to raise hopes that the UK's recession may not be as deep as initially thought

USA

The U.S. July jobs data came in better-than-expected; nonfarm payrolls rose to 163,000 in July, from 64,000 in June. In the meantime, the unemployment rate rose to 8.3 per cent in July, from the previous 8.2 per cent in June. Additionally, treasury yields hit record lows of 1.379% on 10-year notes and 0.535% on 5-year notes.

The U.S. budget gap tumbled to $69.6 billion in July, from $129.4 billion in the same month the previous year.

U.S. Reliance on Saudi Oil Heads Back Up

http://www.nytimes.com/2012/08/17/business/energy-environment/us-reliance-on-saudi-oil-is-growing-again.html?_r=1&pagewanted=all

The United States is increasing its dependence on oil from Saudi Arabia, raising its imports from the kingdom by more than 20 percent this year, even as fears of military conflict in the tinderbox Persian Gulf region grow.

Facebook Investors Cash Out

http://online.wsj.com/article/SB10000872396390444375104577593711737087098.html?mod=WSJEurope_hpp_LEFTTopStories

Sales Ban Lifted on Early Backers; Zuckerberg Acknowledges 'Painful' Stock Drop

Asia & Pacific

Japanese economy decelerated in the second quarter, with GDP adding 0.3% in the April-June period. Consumer spending slowed almost to a minimum and exports grew modestly, increasing a possibility of economic stimulus.

China is suffering a major economic slowdown. Trade balance narrowed to $25.1 billion in July, with year-over-year exports and imports adding only 1% and 4.7% in July respectively. The World Bank has recently cut growth forecast for the nation to 7.9% in 2012.

China Said To Order Action By Banks As Developer Loans Sour

http://www.bloomberg.com/news/2012-08-17/china-said-to-order-action-by-banks-as-developer-loans-sour.html

China's banking regulator told lenders to push developers for faster home sales, citing signs that credit quality is worsening, a person with knowledge of the matter said.

Japan Eyes Deflation End, Forecasts Modest Recovery

http://www.cnbc.com/id/48698203

Japan's nominal economic growth will exceed real growth for the first time in 16 years next year, the government said on Friday, signaling that a moderate recovery will continue and help the country emerge from deflation.