Divorce bill woes outstripped by transitional euphoria
The Credit Conditions Survey indicated that lenders anticipate the biggest decline in credit available to consumers since 2008, reinforcing expectations of tightening standards which could reduce pressure for higher interest rates.
At a joint press conference, UK Brexit Secretary David Davis announced technical progress had been made. EU chief negotiator Barnier stressed that talks were held up by the UK’s lack of commitment on a “divorce bill”. Barnier’s rhetoric was significant in undermining Sterling confidence, pushing the Pound sharply lower, especially as he added that phase two wouldn’t start at next week’s EU Summit. Although Barnier did concede that the deadlock could be broken, the Pound dipped to below 1.3150 against the Dollar and the Euro advanced to four-week highs near 1.1075.
Sterling surged late in the afternoon on reports that the EU may offer a two-year transitional deal, complete with access to the single market. The Pound then recovered to back above 1.3250 against the Dollar while the Euro more than reversed earlier gains to register net losses around 1.1210, with some optimism surrounding trade talks also a positive factor.
The US Dollar followed a mixed direction yesterday, rising strongly against the Euro but seen trading down against the Yen and the British Pound. Weekly unemployment claims fell distinctly, rising just 243k against estimates of 251k. The focus is back on the Fed’s next move, with the Fed fund futures yields continuing to price the chance of a December rate hike at 87%. The PPI data for the US rose 0.4% in September as expected. This can be seen as a prelude to today’s key CPI reading that will draw a lot of attention due to the concerns revealed in Wednesday’s FOMC minutes that the current low spell of inflation is not just transitory.
Today, the main focus will be the US consumer prices index data for the month of September. According to the economists polled, the headline CPI reading is supposed to rise to 0.6% on the month and extend above 2% on a year over year basis. Core CPI is expected to rise 0.2% on the month, maintaining a steady pace of improvement. US retail sales numbers are also expected with forecasts showing a bullish assumption.
In the Eurozone yesterday, there was limited data out but industrial production posted firmer than expected for August, showing signs for a positive outlook.
European Central Bank (ECB) President Mario Draghi pledged to keep interest rates low, surpassing the ending of the Quantitative Easing programme in order to fulfill inflation expectations. Draghi also mentioned howl, although ineffective, there has been progress in wages but he was unable to find support for the single currency. Further, reports after Draghi’s speech implied the ECB could cut the asset purchase programme to 30bn monthly bond purchases as early as the beginning of 2018.
The Euro lost ground after Draghi’s comments and off the back of US data as the Euro yesterday declined slightly to the 1.1830 area against the Dollar.
Data To Watch:
13:30 USD Retail Sales ex Autos (MoM) (Sep)
13:30 USD Retail Sales (MoM) (Sep)
13:30 USD Retail Sales control group (Sep)
13:30 USD Consumer Price Index Ex Food & Energy (MoM) (Sep)
13:30 USD Consumer Price Index (YoY) (Sep)
13:30 USD Consumer Price Index Ex Food & Energy (YoY) (Sep)
13:30 USD Consumer Price Index (MoM) (Sep)
13:30 USD Federal Reserve Bank of Boston President Eric Rosengren Speech
15:15 EUR ECB Vice President Vitor Constancio speech
15:25 USD Fed’s Charles Evans Speech
16:30 USD FOMC Member Robert Kaplan Speech
18:00 USD FOMC Member Jerome Powell Speech
19:00 USD Monthly Budget Statement (Sep)