- Gold lower as traders gradually increase risk exposure;
- GBP tumbles as inflation falls short of expectations;
- EUR recovers after German GDP miss;
- US retail sales and manufacturing data eyed.
The risk rebound continues in financial markets on Tuesday, as tensions between the US and North Korea appear to ease and investors gradually unwind their safe haven trades from last week.
Gold – the ultimate traditional safe haven – is on course for a second day of losses and is currently trading around $1,273, finding some support around the level it ran into difficulty around a couple of weeks ago. A break below here could see $1,260 come into play and even $1,250, where it also found support this time last week. Assuming we don’t see another flare up in the war of words between the two countries – or worse – then Gold could remain under pressure in the days ahead, although traders are understandably cautious still.
The British pound fell to a one month low against the dollar on Tuesday after CPI data for July showed inflation remained unchanged from a month earlier, despite expectations for a small increase. The data reduces the need for the Bank of England to tighten monetary policy in response to above target inflation, which peaked a couple of months ago just below 3%. With price pressures appearing to have cooled and the economy still facing a couple of years of uncertainty and slower growth, markets appear to once again be pricing out a rate hike this year and possibly next.
The euro has recovered to trade only slightly lower against the dollar on the day, having coming under some selling pressure earlier in the session in response to weaker than expected German GDP data. While the number fell short of expectations, it still represents a strong quarter of growth in the euro areas largest economy and came with an upward revision to the previous quarter.
The timing is also very good, with Angela Merkel out on the campaign trail ahead of the September election. While consumer spending was a big driver of growth in the second quarter, ramped up government spending also contributed to the stronger output which the sceptics among us may think is no coincidence given the proximity to the election. That said, strong growth has been a consistent feature in Germany for some years now and unemployment is very low which should continue to support the economy and help Merkel’s case next month, not that she needs it if recent poll numbers are to be believed.
We still have more data to come today from the US, with the most notable being retail sales for July. Consumer spending is a critical component of the US economy and something that has remained adequate yet unremarkable for some time. We’ve actually seen a gradual slump in spending over the course of the year, something I’m sure the Fed would like to see a reversal of in the second half. The New York empire state manufacturing index will also be released today, among some other tier 2 data.
