On Monday, Eurostat released its preliminary estimate over the cost of living as per the CPI (Consumer Price Index) level. The index’s value remained unchanged at an annualized rate of 0.2% in August though expectations were of a 0.10% drop. As for the core inflation, it didn’t glitch from the previous 1%. ECB’s (European Central Bank) most current analyses foresee an annualized rate of inflation at 0.3% for 2015, with a hike towards 1.5% in 2016. There are important risk to be considered if taken for granted this presumable trend, a relevant example being the price drops in commodities (especially in crude oil). The Central Bank can retaliate though through an extended QE, as stated by Praet with the press conference from 26th on August.
Tuesday brought a spike in the Aussie’s trend in the middle of the Asian trading day. The upward slope was the result of RBA’s (Reserve Bank of Australia) stand regarding the cash rate, the 2% record low level being maintained further on. The fact that the monetary authority kept the cash rate on hold boosted the bid sentiment around the AU/USD. RBA further declared that the cash rate is data dependent and will evolve along with AUD’s adjustment to recent price developments. On another note, support also came for the Aussie from the rise in building consents and the deficit in China’s PMI (Purchasing Managers Index) revision. The Caixin manufacturing PMI came up to only 47.3 in August, after the first analyses pointed 47.1. Though the upbeat in revision, the level is lower than July’s 47.8. Though the market has expected a 47.2 read in August, a reading under 50 is a red flag the economy contracting, and not expanding as it should.
The second day of the week brought bad news for the USD, ISM’s index (Institute of Supply Management) falling from July’s 52.7 to 51.1 in August, a threshold not breached since August, 2013. Last period’s strong USD and the downfall of demand in emerging market (ex. China) set exports in a steep fall towards April, 2009’s level. The ISM new orders benchmark went from July’s 56.5 to 51.7in August, marking a two-year low. In a similar way, export orders went down 1.5 point to reach 46.5 in August.
The WTI (West Texas Intermediate) barrel – USA’s benchmark – for light crude oil has rallied downwards with over 7% the past couple of days, reaching the $46.00 area late yesterday. As for the crude oil price, we can see a 3-session streak with positive settlements, distancing itself with over 27% from last week’s low of $38.00 and almost reaching the critical threshold at $50.00 on Tuesday. Rumors about an OPEC production decrease and the lower US output are the main reasons behind this hike.
