Eurozone core inflation falls further, weighing on yields and the euro

Eurozone economic indicators this morning have been something of a mixed bag, although traders seem enthused on the back of them rather than disappointed.

We’ve seen regional data over the last couple of days which gave us some indication of how today’s HICP report would look and a drop in the core reading in line with expectations combined with no decrease in the headline seemed to make sense. Unemployment, meanwhile, remained at a record low despite an increase in the number of those unemployed.

Perhaps there’s some relief that the headline HICP rate didn’t tick a little higher while the core did decline which combined with expectations for the coming months gives the ECB plenty to debate. Another hike in September still strikes me as more likely than not but on the back of this release, markets are swinging the other way, pricing in a near 70% chance of no increase.

That’s helped the euro to slide more than 0.5% against the dollar this morning – similar against the yen and a little less against the pound while regional markets are seemingly unmoved and continue to trade relatively flat.

Focus now shifts back to the US with PCE inflation – the Fed’s preferred measure – jobless claims, income, and spending figures all due before the open on Wall Street and ahead of tomorrow’s jobs report.

Oil edges cautiously higher after mixed Chinese PMIs

Oil prices are nudging higher again today, technically on course for a fifth day of gains in six in Brent – six in a row in WTI – although broadly speaking they’re just a little above the middle of what appears to be a newly established range.

Brent peaked near $88 a few weeks ago and bottomed around $82 last week as we await more direction on the economy and therefore demand. Data this week has been on the weaker side, although it’s the jobs report tomorrow we’re most interested in.

The Chinese PMIs overnight had something for everyone. Manufacturing was unexpectedly improved but still contracting at 49.7 while services were quite the opposite, expanding but at a slower pace than anticipated. All in all, it continues to paint the picture of a sluggish economy that’s showing few signs of bouncing back stronger.

Gold struggling around $1,950 ahead of more US data

Gold has been buoyed in recent days by the US data we’ve seen, particularly the JOLTS figures which, if combined with a weak report tomorrow, could strongly point to cracks appearing in the labor market. We’re not talking about anything too substantial at this point but certainly less heat which the Fed will be comforted by, potentially enough to pause again in a few weeks.

The yellow metal ran into some resistance around $1,950 which is an interesting level from a technical perspective – key Fib level using the July highs and August lows – and the 100-day simple moving average. Some weaker PCE data today could give it another helping hand, especially if supported by other releases.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA