With only two days to go until the most anticipated Fed decision in years, investors are understandably quite cautious today but there is a number of economic data releases that may spark some volatility. Stanley Fischer, Fed vice Chair, recently claimed that the economic data in the lead up to the September meeting could still influence the outcome, which suggested a number of policy makers remain on the fence. With that in mind, today’s releases may well matter when it comes to the all-important decision on Thursday.
Of all today’s data, retail sales for August is the one that could have the biggest market impact. Not only does retail sales makes up around a quarter of US GDP, making it a critical component, it offers insight into overall personal spending trends and the services industry makes up around 70% of GDP. The Fed will not ignore this reading when it meets over the next couple of days. Especially as so far this year, this has been used as a key argument against a rate hike as spending has been relatively subdued, especially when we account for the boost to disposable income from lower oil prices. With that in mind, and considering the impact that spending has on future inflation levels, a poor reading today could have a greater impact on the decision this week than a good one.
Other notable data releases include the empire state manufacturing index, which suffered a significant decline last month, industrial production figures for August and capacity utilization. The latter has been on the decline slightly this year which doesn’t bode well for future inflation, although it should be noted that they are also not a million miles from pre-financial crisis levels which suggests these inflationary pressures are not too far away.
EURUSD – The euro has recovered some of its earlier losses this morning, despite disappointing ZEW economic sentiment figures from Germany and the eurozone. One positive thing to come from the release was that the German current situation measure rose to the highest level since April but that was somewhat overshadowed by the outlook being far more pessimistic than previously. The same was true of the eurozone economic sentiment reading, with both falling to the lowest levels this year. Still, the euro rallied a little against the dollar and now trades only marginally lower on the day. The pair continues to face strong resistance between 1.13 and 1.14 and could continue to do so ahead of Thursday’s meeting. A break prior to this could take a significant catalyst, possibly a very poor retail sales number, and would be quite bullish.
GBPUSD – This continues to trade around a major resistance area for the pair between 1.54 and 1.55. This morning’s UK inflation data failed to provide the catalyst for a push above, having come in in line with expectations. The pair has pulled back from the day’s highs though, set in the immediate aftermath of the release, which may reflect the fact that this decline in inflation, despite being expected, does give BoE doves more ammunition when it comes to future meetings. The downward price pressures are still clearly prevalent in the UK.
The S&P is expected to open 3 points lower, the Dow 30 points lower and the Nasdaq 8 points lower.
For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-events/