Euro Pulls Back After Weak GDP Data

Euro pulls back after weak German and Eurozone GDP growth numbers. UK inflation came out above expectation. Markets await Merkel/Sarkozy press conference and US housing data, Capacity utilization and Industrial production.

The Euro pulled back after Q2 Euro zone GDP grew by 0.2% from previous 0.8% while the market anticipated 0.3%. The weak print was not surprising given the weak German GDP growth (0.1%) we saw just a few hours earlier.

GBP is a touch stronger after July CPI came out at 4.4% y/y up from previous 4.2% and slightly higher than expected 4.3%. Monthly CPI was unchanged. GBP continues to trade at session highs despite BoE King’s comments that Euro crisis could cause severe stress in the UK markets and that QE could be used to respond to risks.

Markets will eagerly wait for the result of a Merkel/Sarkozy meeting in Paris. Officially, the Eurobond topic should not be discussed but any hints during the press conference planned at 12:30 pm ET that such a solution is on the table should underpin the Euro.

Fiscally responsible countries, such as Germany, have been against the common bond idea but as debt crisis spreads into more and more countries genuine solutions are hard to come by. The Eurobond would most likely calm the markets as weaker countries could borrow at a lower cost.

The New York session kicks off at 8:30 am ET with July Building permits that are expected to decrease slightly to 605K from 617K and July Housing starts that are also projected to decrease, in this case to 600K from previous 629K.

At 9:15 am ET the Federal Reserve will release July Capacity Utilization rate estimated increase to 77% from previous 76.7% and Industrial production that is expected to improve by 0.5% from previous growth by 0.2%.

Patrik Urban