Investors are getting nervous and there are a number of good reasons to be so with yesterday’s shock fall in US retail sales being one of them. A major gauge of investor concern, the Vix index, hit a near three year high yesterday. Across the board economists and analysts are re-evaluating not only their growth forecasts (many pre-empted by the IMF’s revisions last week), but their inflation forecasts and as a result their interest rate hike expectations which are being pushed further and further back. Then there’re crude prices, a good gauge of investor sentiment towards global growth prospects, which continued their plunge lower yesterday. At the moment there are many arrows pointing to the exit but for today at least there seems to be a degree of sanity amongst the chaos as European indices are bouncing strongly this morning.
For FX markets the dollar rally is being significantly tested. The recent data simply hasn’t done enough to warrant a continuation of dollar strength and with US government bond yields plummeting it’s going to take some really good economic numbers to turn sentiment around. Today US industrial production and the Phili Fed might be able to lend a hand, but before then focus will be on Eurozone CPI with the year on year figure due to decline from 0.4% to 0.3%. Considering that so far this week inflation data from the UK and Eurozone has done nothing other than surprise to the downside, we shouldn’t expect any shocks to the upside.