Most of the main European markets, including Germany, France, Switzerland and Spain are closed today, so expect light trading until the US opens around lunch time. First up, data from China this morning showed the supply of new loans in May well below market consensus. Any missed numbers from China are bearish for risk assets, and we can expect the US Dollar to do well today on the back of this news. For the rest of the week US data is light, CPI figures are due on Wednesday but with inflation pressures in the US much less of a problem than in the UK, the number is less closely watched by the market. Friday sees the University of Michigan confidence survey for June released. Going into the usually weak summer months, the market is looking for a bit of cheer given talk of the potential for a double dip. The confidence figure is perceived as a leading indicator of economic recovery, and the market will jump all over a weak figure and the increased possibility of further QE.

Sterling data out this week include jobless claims on Wednesday and retails sales on Thursday. Data on the health of the high street are very important to Sterling, given the role of the consumer in creating demand in the economy. Recent numbers have been weak to say the least, and we can expect the trend to continue as retailers get squeezed by falling consumer demand and increasing costs as input prices continue to climb. The key release, given that the media is currently cranking up the pressure on the Bank of England and their perceived failures, the CPI figure is particularly eagerly anticipated. The surprises will remain to the upside for the foreseeable future and the Bank must be concerned that the market may begin to lose faith that they remain ahead of the curve. The usual relationship between above target inflation and Sterling would be for the currency to rise in anticipation of the central bank raising interest rates. This relationship may begin to invert if, by keeping rates on hold, the Bank starts eroding all of the economic brownie points it racked up in the past decade when inflation was low and stable.

Euro-zone CPI is also due on Thursday and given the ECB President’s use of the words “strong vigilance” at the meeting last week, any remaining uncertainty over a rate hike in the next few months will be put to bed if the number is ahead of market expectations. More likely though is that inflation readings remain stable or decline slightly as the first round effects of the preceding increase in rates continue to work their way through the system.

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