European Data Day And Potential Market Volatility

By Orbex

Monday could be pretty interesting for European markets, and there is a chance of a strong move in the early European session.

Part of that has to do with the lingering effects of what might come out of the Jackson Hole Symposium, and another is a plethora of different data points coming out throughout the session.

Fed Chairman Jerome Powell will speak before the close of today’s European session. Therefore it’s possible that the “tone” of the Jackson Hole meeting won’t be clear until after the close. And the markets might take some time to digest the implications of any change in policy outlook.

So, we might want to keep an eye on the markets at the start of the session to see if there is any additional reaction to the monetary policy outlook.

The data points

In terms of data that could potentially move the markets on Monday, we start with retail sales from Spain.

We have to remember that Spain was one of the most affected by covid. Nonetheless, it has an increase in demand in summer usually because of higher tourism.

So, better results from Spain might be a reflection of continental improvement in outlook. The periphery is often a bellwether for economic sentiment in the eurozone.

Analysts expect Spanish retail sales to rise by 0.5% in July, compared to 0.2% in June. This would push the annual rate to 3.8% from 1.4%.

Should they meet expectations it would confirm an end to the “normalization” of retail sales. In turn, this would suggest that consumers are returning to a more positive outlook.

Coming off the mountain

Next up is the Swiss KOF leading indicator, measuring the relative optimism of major Swiss business leaders.

Since May, optimism has been tracking lower and economists anticipate it will continue in that trend. As Swiss economic activity normalizes, the positive outlook associated with the recovery would naturally dissipate. That said, the KOF leading indicator is forecast at 120, down from 129.8 in the last reading.

The eurozone consumer confidence comes out after that. And the prediction for that data is to slip further into negative territory.

The rise in delta variants and the refusal of authorities to rule out another round of lockdowns have been impacting consumer outlook. Though it appears consumers are still spending, they aren’t confident about the future.

At some point, retail sales could drop, and pull down inflation. Analysts project the eurozone consumer confidence for August to come in at -5.3, from -4.4 in July.

Rounding things up

Spanish business confidence is next, which economists expect to drop to 1.5 from 1.9 in the previous reading.

If we factor in consumer spending reports from earlier in the day, the suggestion is that Spanish business leaders believe the increase in sales to be transitory. The longer-term impact, should those fears be true, implies less inflation for the euro going through winter.

Speaking of inflation, the final data point is German August flash CPI, which will probably tick slightly higher to 3.9% from 3.8%. Germany has one of the highest inflation rates in the shared economy, buoyed by a stronger recovery.

Overall, we’ll have to wait and see how the European data releases could impact the markets.

By Orbex