EUROPE MORNING: Germany Recession On The Cards

*Germany to succumb to a technical recession?
*GBPUSD draws bias from UK Retail Sales
*Not a pretty day for AUDUSD
*US data and Fedspeak out later tonight

German GDP in focus

What constitutes a technical recession? Two quarters of consecutive negative growth. Markets find out if Germany is likely to enter a technical recession at 7am LT with the release of quarterly German GDP flash estimates. The release is forecast to print -0.1%, unchanged from Q2's print of -0.1%. Remember, these are preliminary and are subject to change in the final print. Having said that, the print may not go a long way in impacting EURUSD given most are expecting a weakish number having seen average manufacturing and confidence numbers as of late, however, it does highlight the longer-term struggles of Germany and Europe growth in general. What we look out for is how much pressure this raises on governments to loosen their tight grip of fiscal budgets to stimulate the economy. 

Technical German recession? Source: Eikon

UK Retail Sales to get more GBP action?

Something to monitor up ahead for traders is UK Retail Sales due for release at 9.30am LT. We think it does a bit better in terms of volatility than last night's UK CPI print which didn't vary much from expectations and drew a negligible reaction in GBPUSD. GBP implied volatility as it stands suggests a 60bps one standard deviation range for the session. But we're mindful election risks are also accounted in that figure. Retail Sales y/y have polled 3.7% consensus. For the print we lean towards a positive GBPUSD move given the recent spate of positive earnings growth and proven resilience. 10 out of the last 12 outings have resulted in beats with the remaining two printing in line with expectations.

Range of the last three outings for UK Retail Sales in GBPUSD. Source: ThinkMarkets

Uh oh, Aussie no

It wasn't a pretty day for AUDUSD having been weighed on initially by a poor jobs report followed not long thereafter by soft China activity data. The Aussie jobs report missed on most aspects with the headline number falling well short of consensus -19k vs 15k est, and unemployment edging higher to 5.3%. The most disappointing part for us was the -10.3k drop in full-time employment despite a tick lower in the participation rate to 66%. Combined with a weak China activity release which missed expectations on all fronts, AUDUSD cratered 0.60% commensurate with the fall in US 10y yields. Some upside to the event however was seen in ASX Cash; up 0.55% on increased chances of an RBA rate cut in 2020. While we flagged a potentially more muted reaction from Aussie jobs, we - alongside others - were caught off guard by how poor the data was. 

Source: Eikon

US data and Fedspeak

As a reminder, we also pay close attention to the outcome of a number of US data points and scheduled speeches from FOMC members. 
  • 1.30pm LT: US Initial Jobless Claims est. 215k; prior month 211k. 
  • 3pm LT: Fed Chair Powell testifies on the economy.