Risk appetite seems to be back, with Asian stock markets moving broadly higher, led by strong advances in Japan after yesterday’s holiday. Energy producers led the way as WTI crude oil prices climbed above USD 44 per barrel, only to slide back to 43, and a weaker yen underpinned Japanese markets, while earnings reports helped the Hang Seng to move higher. French payrolls were in line with expectations showing gains in wages as well as employment.  German inflation was in line with expectations.

French non-farm payrolls rose 0.2% quarter over quarter in Q2, unchanged from the first quarter, which was revised down to 0.2% quarter over quarter from 0.3% quarter over quarter reported initially. Wages rose 0.3% quarter over quarter. The modest improvement in payrolls, is some positive signs, but generally, the under-performance of the French economy and the slow pace with which the government is implementing urgently necessary reforms of outdated labor laws and regulation, will continue to hamper the labor market.

German Inflation was Confirmed at 0.4% year over year

German July HICP confirmed at 0.4% year over year, in line with expectations and the preliminary numbers. Headline rates are creeping higher, as negative base effects from lower oil prices are starting to fall out of the equation. A tight labor market, rising wages and robust consumption trends should continue to underpin a rebound in inflation and with the property market looking very tight, and the wave of immigration adding to demand, rent costs, which account for a sizeable chunk of the HICP in Germany are also set to pick up markedly.

July retail sales data which is scheduled to be released on Friday is forecast to increase by 0.4% on the headline with the ex-autos figure up 0.2% for the month. This compares to June figures of 0.6% for the headline and 0.7% ex-autos. Despite the big bounce in vehicle sale in July there are numerous downside risks to the release from falling gasoline prices, tepid chain store sales and waning consumer confidence as we discussed in Monday’s commentary.