We have seen a slightly brighter mood emerge overnight across Asia after US stock markets closed lower for a fourth day. Japan again leads the way with the Nikkei hitting a six-month high, while tech stocks are rebounding after being hit recently on the potential for more Chinese regulation. Japan has been the highlight this week as the Suga-succession race hots up and M&A newsflow spurs risk appetite.

News that US President Biden also spoke to his counterpart in China, Xi Jinping for the first time since February has added to the more positive risk tone. The countries have vowed to hold regular communications, although Biden did express his frustration with recent dead-end talks.

ECB looking to December

President Lagarde did pretty much what was expected at yesterday’s ECB meeting. Although not called tapering, the “re-calibration” (slowing the pace of the pandemic bond buying programme) is a very tentative sign that tapering will eventually come.

Officials were cautiously optimistic and raised the staff projections for both growth and inflation. But they also reiterated a pledge to keep the €1.85 trillion programme running until March 2022 or later if needed, signalling they’re not ready to discuss ending the measure just yet. The inflation bump is seen as transitory.

The euro found support at the 50-day moving average and the mid-August high around 1.18 after three straight days of losses. A breach of 1.18 will find modest support in the mid-figure area. Resistance comes in around 1.1850 and then 1.19/10.

UK GDP disappoints

July monthly UK GDP has just been released and showed that growth conditions look to have peaked during the summer months. The m/m reading printed at 0.1% versus 0.6% expected and 1% prior. More sluggish momentum is forecast towards the latter part of this quarter as the UK furlough scheme ends.

Speaking of which, Goldman Sachs believes there could be a messier end to this program that finishes at the end of this month, and this will prompt the Bank of England to delay raising rates. While the money markets are pricing in a rate rise next May, with 28 basis points of increases by the end of next year, the US investment bank don’t see borrowing costs rising until the third quarter of 2023.

GBP/USD pushed high yesterday but is trading around 1.38 and the 200-day moving average. The downtrend at the start of the week looked ominous but bulls will look to push higher above 1.3862 to close the week on a strong note.

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