BANK OF ENGLAND PREFER A RATE CUT
Bank of England Governor Mark Carney may have raised a few eyebrows yesterday during his press conference which followed the inflation hearings yesterday. Mr Carney went on record to say that the much anticipated rate hike will be over a “period of time”. Consequently, analysts’ predictions for the rate hike are now far more diverse – there are calls for the first half of 2016, but some analysts are now predicting early 2017.
Mark Carney also stated that in the current climate, a rate CUT would be preferable whilst UK inflation continues to struggle. The reasoning behind this is that either lower or negative interest rates will encourage consumption, thus creating more economic activity as more of us will be spending instead of stockpiling cash. This comment was followed by a statement saying that current domestic demand remains resilient, even in the face of fiscal tightening…which could be considered as slightly contradictory.
Yesterday’s news resulted in losses across the board for the Pound. Versus the Dollar, the losses extended to a full cent whilst versus the Euro, the pair trades down by almost 1%.
Dollar bulls received some reassurance following Tuesday’s firm US Q3 GDP announcement of 2.1%, which intensified the growing expectations of a US interest rate increase in December. Data from the States has pointed towards a recovery in the month of November, and with previous concerns regarding the potential slowdown in economic momentum in the US economy quelled, sentiment towards the Dollar has become sanguine.
Yesterday’s impressive US GDP release has provided the Fed another compelling reason to raise US interest rates. Today’s Personal Consumption and Expenditure figures along with the Durable Goods Orders report will shed some more light on the state of the domestic economy in the US. A bullish reading should reinforce traders’ confidence in the Dollar and allow the currency to move higher against its peers.
Yesterday, the main release from the Eurozone which points to economic activity came from Germany in the form of German GDP. The figures released showed us the gross domestic product increased by 0.3%, which was in-line with estimates for the third quarter of 2015.
The German economy has struggled this year and that shows in the annual growth figures to date as the release yesterday showed us that GDP has increased modestly – by 0.4% in Q2 and 0.2% in Q1. This brings overall annual growth to 1.8%, which considering what has been a rather “stop/start” year, particularly when considering the import/export deficit in Germany, the GDP figures do not actually paint a particularly negative picture whatsoever.
Other releases from Germany performed positively, with IFO current assessment, business climate, and business expectations came in showing numbers that exceeded market consensus
Data to watch: 12.30pm UK Autumn Statement. 1.30pm US Personal Spending, Income & Consumption, Initial Jobless Claims & Durable Goods Orders.