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The Positive macroeconomic data released on Thursday eased the tension and allowed the markets to win back some losses. Retail sales rose in July by 0.7%, which was above the forecast of 0.3%, preliminary data on productivity and labour costs in Q2 was also better than expected, which indicates low market expectations for income of employees and, consequently, on inflation.
After government bonds of several countries headed by the United States showed the inversion of yields, the prevailing mood in the markets was the growth of panic and excessive demand for defensive assets, which led to the collapse of the stock markets. However, the study Mizuho Bank refutes the widely held view about the inevitability of recession, in his opinion, the negative effects come in the first place, as a consequence of policy tightening prior to a recession. Since the fed indicates a reversal in monetary policy, the chances of avoiding recession are increasing, which can lead to a reversal of the markets upwards.
the German Economy declined in the second quarter, and weak sentiment data indicate that the negative growth continued in the third quarter, which will lead to a recession. The decline in GDP in the second quarter and 0.1% followed the unexpected increase of 0.4% in the first quarter, so the overall economy in the first half is still growing significantly.
However, prospects are getting worse. Some sentiment indicators such as Ifo, have suggested that the economy is in recession. A similar result was published ZEW index of business sentiment fell in August from -24.5 p -44.1 n, the Eurozone as a whole decline -20.3 p -43.6 p.
Brexit would inflict a significant blow to economic growth, the German government and the Bundesbank support the willingness of the ECB to introduce stimulus at its September meeting. Yesterday the head of Bank of Finland Olli Rehn said in an interview with the Wall Street Journal that the upcoming pack will have a greater impact than a series of individual measures intended to reduce interest rates and significant bond purchases.
today the Euro looks worse than the market, the momentum remains strong, to form an upward correction is not possible. A likely break of the support 1.1091 and expressed movement to a minimum Aug 1.1029.
the Pound is trying to form a base above 1.20, taking advantage of strong macroeconomic data. Consumer inflation rose unexpectedly in July from 2.0% to 2.1%, while was expected to drop to 1.9%, core inflation rose from 1.8% to 1.8%. A notable increase was shown, producer prices, retail sales continue strong growth, in July +3.3% better than expected, expected to grow by 2.6%.
inflation Growth and retail sales indicates strong consumer demand, however, largely supported inflation and a weak pound, which has led to a rise in import prices. More significant is the inversion of the spread of yields on 10 - and 2-year government bonds of the UK, which was recorded on August 14. The inverse happened for the first time since the summer of 2008, and as an indicator of an approaching recession, it is more informative tool for investors, because it has long-term predictive power.
the Bank of England traditionally follows the fed in formulating monetary policy, strong inflation data and retail sales address concerns about the introduction of stimulus measures at the next meeting. The Bank of England will wait to address the situation of Brexit to focus on the consequences for the economy. Boris Johnson has promised to withdraw from the EU in regardless of the scenario that is regarded as a long-term threat and will not allow the pound to resume growth.
Friday's likely trade in the range of publications of important macroeconomic releases are not planned, support 1.2015 looks more reliable than it seemed on Wednesday. Possible attempt to update the recent high of 1.2148 and a trip to the zone of equilibrium 1.2161/69.
the Material has been provided by InstaForex company - www.instaforex.com
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