All I want for Christmas is a transitional Brexit deal…
Theresa May’s soothing comments that a “transitional” brexit process would be outlined in the New Year helped underpin the Pound somewhat. Sterling still suffered net losses for the day as a result of the Scottish Independence risks, the currency held below 1.2400 against the Dollar.
Bank of England MPC member McCafferty told us that the Bank of England is equally likely to raise or lower interest rates, and the “limited tolerance of an inflationary overshoot” and any action to counter it will depend on “depend crucially on how the different cogs and wheels in the economy behave”. The CBI retail sales survey was better than expected with a 15-month high reading of 35 from 26, although there were expectations of a sales decline for January which reinforced concerns that spending would decrease next year as retailers pass on Brexit costs. Sterling remained under pressure in Europe yesterday with a retreat to below 1.2350 against the Dollar with some suspicion of year end selling as the Euro moved below 1.1900.
The seasonally-adjusted Euro-zone October current account surplus widened to EUR 28.4bn from EUR 27.7bn previously. There were further substantial net capital outflows for the month as overseas investors sold Euro-zone bonds. The current account surplus will, however, put significant upward pressure on the Euro if there is a shift in the capital account and decline in outflows.
The Italian Government has parliamentary approval to lend £16.8bn in order to protect Italy’s struggling banks. However, the banks will need at least 52 billion Euros to reestablish their balance sheets.
There were no significant US data releases yesterday and the releases in the lead up to Christmas are unlikely to have any significant impact unless there is a substantial deviation from expectations. San Francisco Fed President Williams stated that he expected the 2017 economic outlook to be similar to this year and that he expected the process of gradual interest rate increases to continue.
Markets continued to test the Euro’s downside during the day with fresh 13-year lows near 1.0350 against the Dollar as existing bond yield spreads continued to encourage selling with the Dollar’s trade-weighted index at 14-year highs.
There was a modest dollar correction from late in the European session as liquidity declined with the Euro edging back to the 1.0400 area.
Data to watch: 9.30am UK Public Sector Net Borrowing (Nov). 3.30pm US EIA Crude Oil Stocks Change