Another Super Thursday and we’re looking at the Trade Balance
As we await US Initial Jobless Claims and the Monthly Budget Statement today we are reminded of a dovish stance at the September FOMC meeting due to instability in the financial markets. Since then we have noted a change in rhetoric from Janet Yellen, attempting to play down the date of a US rate hike. For the Fed Chair, markets should focus on the size of increases and the pace that rates are raised. Hence, the traders may have sold USD this week on speculation that a renewed sentiment of risk aversion in the financial markets would force the Fed to initiate a much smaller liftoff than the standard 25 basis points.
After being out of the limelight for a while, the focus is back on Mark Carney and the Bank of England (BoE) today as they make their decision on whether to raise interest rates in the UK or not. It is widely expected that rates will remain the same as a renewed drop in oil prices below $40 a barrel will keep inflation nailed to the floor. October inflation remained in negative territory which was well below the 2% target. UK miners are also having a tough time on account of the rout in the commodity prices and signalling a rate hike/liftoff at this current juncture could hurt the economy.
Talk of the UK current account issue is gaining pace. On Tuesday, the British Chamber of Commerce (BCC) blamed weak international trade for the slowdown in the economy and also advised the BoE to delay its liftoff beyond Q3 2016. The markets expect a minor rise in the UK trade deficit in October. A bigger than expected jump in trade deficit will not be good news for Sterling bulls. A rise in the trade deficit with non-EU countries will be bad news as well.
The European Central Bank member Edwald Nowotny defended last week’s decision to cut deposit rates but avoiding an increase in the size of quantitative easing (QE) and said the central bank would not let market expectations influence its decision. The financial markets were heavily short on EUR following its decision, since the bank was widely expected to announce an increase in the size of its QE programme, but the bank only extended the end date by six months.
The Euro extended its gains against the Dollar yesterday and is close to testing the 1.10 mark for first time in over a month as the US dollar faces a selloff across the board. Meanwhile, investors continue to get rid of US Dollar, as selling interest intensifies ahead of the Federal Reserve meeting next week.
Data to watch: 9.30am UK Trade Balance (Total, Non-EU & Goods). 12pm UK BoE Interest Rate Decision, meeting minutes, statement & voting. 1.30pm US Initial Jobless Claims. 7pm US Monthly Budget Statement.