Balance of power shifts to the right in Sweden

The latest news from Sweden over the weekend has again highlighted the rise of populism in Europe with the most liberal of all the EU27 seemingly handing that group the balance of power after the weekend’s election result there.

That news has helped to keep the EUR under pressure; pressure that was rekindled on Friday following the release of another good set of US employment data. The real takeaway from that data was a significant increase in the rate of annualised average earnings; moving ever closer to 3% last month.

So, that data has put further upside pressure on US interest rates and pushed 10year bond yields back towards 3% once again. That in turn helped to push the dollar higher on Friday, particularly versus the pound and the EUR. So, technically it was a generally positive close for the US currency which looks like it could extend again this week.

The markets will be keeping a close eye on the data releases this week too; most notably in the US, Europe and here in the UK. The highlights being the latest ECB and Bank of England policy decisions due on Thursday.

However, there are other important releases due out from the UK and the US too. As far as the UK is concerned though; its unlikely that we will see another rise in the base rate just yet. No material change is expected from the ECB either this week. Notwithstanding that, the prospect of a further change in their bond buying agenda is not to be discounted either.

However, and perhaps more importantly, US data releases could help to underline the prospect of another US rate increase at the end of the month. The US Federal reserve is due to make that decision on the 26th and the market consensus is now firmly calling for another 0.25% rate increase and that outcome does rather look like a given now.

The equity markets are continuing to look weak in Europe too, highlighted by under-performance both here and in Germany relative to the US and Japan. So far though risk aversion is not taking any hold of those non European markets, but taking that for granted is never wise, especially when we get to this stage in the calendar. Historically, October is a notorious month for this.

Perhaps a warning in that regard is coming from closer to home with the continued outperformance being seen in the CHF. So far the CHF has been the best performer, outside of the dollar within the G10 space over the past couple of weeks, but joining all the technical dots together this morning, the EUR versus the JPY looks like it may have more downside traction too.

Key data events this week-

11/9 – 9.30am UK August unemployment report

13/9- 12pm Bank of England Monetary policy decision

13/9- 12.45pm ECB monetary policy decision

13/9- 1.30pm August US CPI report

14/9- 1.30pm August US retail sales