Intraday Market Thoughts

Euro Steadies, US Spending, Core PCE Price Index Next

by Patrik Urban
Oct 28, 2011 12:36

Markets Consolidate Gains; Core PCE Price Index Is Next

French consumer spending declines; Swiss KOF drops; talks regarding Chinese investment into EFSF continue. Market turns to US core PCE price index (Fed's preferred inflation gauge), personal spending and income and final UoM consumer confidence. Key daily & weekly euro charts are included in the latest Premium Intermarket Insights explain why and where we're long EURUSD. None of the See below.

Markets are consolidating yesterday's massive moves with a slight USD positive tone. However, market optimism should persist so risk on trend should resume. Major European equity indices are in the negative territory but only by about 0.2%.

French consumer spending declined in September -0.5% from +0.2% which is -1.3% on annual basis. The decline is blamed on fall in sales of clothes and energy consumption. Consumer spending is the main contributor to GDP in the second largest Eurozone economy so markets will scrutinize deteriorating data in light of last week's warning by Moody's that France could lose its AAA rating in the next three months. French downgrade would, without a doubt, give a severe blow to Eurozone's effort to stabilize markets and end the debt crisis.

Swiss KOF Economic leading indicator continued to worsen in October as it printed 0.8 from previous 1.21. This is the worst result since August 2009 and sixth back to back decline which points to a weaker growth in the months ahead. Further deterioration could reignite speculation that the SNB will move the EURCHF floor from 1.20 higher, perhaps to 1.30.

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News coming out of China proved that China is contemplating EFSF investment but it is not a done deal yet. Chinese Vice finance minister Zhu said that details are still needed before deciding but confirmed continued talks.

The NY session starts at 8:30 am ET with core PCE price index that is seen slightly higher at 1.7% from 1.6% y/y. September personal income and spending are due at the same time. Income is expected to increase 0.3% after -0.1% contraction in August and Spending is seen higher at 0.6% from 0.2%.

9:55 am will bring revised University of Michigan consumer confidence that is anticipated slightly higher at 58 from 57.5.


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