Euro starts of the week at $1.12

Last week was a volatile week, with the single currency getting brief respites but gaining little. The single currency at this time last week at around $1.1175 and got up to around $1.1250 at times during the week but by this morning, was back at $1.12. The euro lost a little ground to sterling, edging down from around 85p last Monday to 84.6p now. The euro’s problems centre around increased conflict in the Middle East which again is pushing up energy prices and also the continued problems in French bond markets where French yields remain near multi-year highs amid concern about the public finances and little sign of any solution which might take some pressure off France’s bonds.

There was little relief for France last week with protests on the streets and no sign of any movement on budgetary matters which would placate markets with 10- and 30-year yields at 4.85% and 5.4%, both only a little off multi-year highs. German 10-year yields remain at just under 3.5%, little changed on the week. Similarly, US 10-year yields are 5.2%, little changed on the week. In equity markets, both European and US stocks rallied at the end of the week, with the Eurostoxx and the S&P gaining on Friday. However, the Eurostoxx made a weekly loss whereas the S&P finished up on the week and is near a record high.

University of Michigan consumer sentiment for October was weak. It fell to 46.3, down from 48.1 in September and the lowest reading since May. The current conditions index fell to an all-time low of 44.7 with consumers highly concerned about the cost of living. Cost of living remains the dominant worry with a sharp fall in lower-income households’ confidence, the group with the ‘fewest resources to weather’ increasing price pressures.

Kazaks from the ECB appears to be in a ‘wait and see’ mode. He said on Friday, the ECB is in a ‘fairly comfortable situation’ as he described rates as now at the upper end of the neutral range. He also said that the ECB could respond in either direction and that the Euro Area economy is ‘relatively resilient to shocks’. President Lagarde was also out, and while she did not comment directly on the outlook for monetary policy, she did reiterate, perhaps with an eye on the situation in France, that the ECB has instruments to counter unwarranted disorderly market dynamics that might threaten the smooth transmission of monetary policy.

Looking to the week ahead, the focus is likely to remain on the situation in Euro Area bond markets, particularly France, but also on the tense situation and potential for wider conflict in the Middle East. On the economic data front, releases of note include the UK monthly GDP estimate while in the Euro Area we get final CPI data for September. In the US, there is inflation data, the Fed’s Beige Book and retail sales.