Sharp fall in equity markets

Donald Trump’s decision to delay imposing tariffs on some consumer goods imports from China provided only the briefest of respites for markets , with renewed concerns about the health of the global economy sending equities into a tail spin yesterday (the three main US indices shedding around 3% on the day). The dollar benefited in this environment, strengthening to under $1.1150 against the euro, which additionally suffered from weak economic data, including a contraction in German GDP in the second quarter. The single currency also lost ground to sterling, falling close to 92p

Bond yields in the core markets fell as stocks sold off. Most notably, 10-year yields in the US fell marginally below 2-year yields, creating a so-called ‘inversion’ of the yield curve which when it has occurred in the past has sometimes been a precursor to recession further down the road. Meanwhile, 10-year yields in Germany fell further into negative territory to stand at -0.65%

Industrial production in the Euro Area ended the second quarter on a very weak note, falling by 1.6% in June (from May) to leave it running more than 2.5% below its level in the same month in 2018. Also, employment growth in the zone slowed in the second quarter to 0.2% q-o-q, the weakest outturn since the first quarter of 2015

Inflation in the UK picked up to 2.1% in July, slightly above the Bank of England’s 2% target. Given this, and the recent acceleration in wage growth reflecting the tight labour market, the BOE is unlike to join other central banks in easing monetary policy just yet notwithstanding the economy contracting slightly in the second quarter

Data scheduled for today include retail sales in both the UK and the US, with industrial production and weekly jobless claims due in the latter as well