Haunted by rate hike spectre
UK Net Lending growth met consensus expectations of £5.5bn for September from a revised £5.7bn the previous month with mortgage approvals also in line with expectations. Underlying credit demand still appears firm, which underpinned Sterling to some extent, although consumer confidence fell modestly for October.
The market maintained expectations of a 0.25% hike at Thursday’s Bank of England (BoE) monetary policy decision. Given the rate decision is usually made ahead of the scheduled announcement, markets will be wary over potential leaks in advance of the announcement.
Sterling moved to retest Dollar resistance above 1.3200 and rose to three-week highs against the Euro, peaking at 1.1360 before consolidating close to 1.1335. The Pound remained resilient on market open despite the BoE warning of substantial City job losses if there is no financial market post-Brexit deal.
The US Dollar is broadly weaker today despite stronger-than-expected consumer spending data for last month that rose at the fastest pace since 2009.
The main reason for Dollar weakness was the announcement that Paul Manafort, Trump’s former campaign manager and a member of his staff, has been charged with 12 offences, including money laundering and conspiring against the US.
The Greenback is poised to stay under scrutiny in light of the Federal Open Market Committee meeting tomorrow and President Trump’s decision on the next Fed Chief, expected on Thursday. The Buck strengthened somewhat on Friday after rumours that Trump could lean towards FOMC’s J.Powell to lead the Federal Reserve began hitting the wires.
This week we have a lot of US data to be released including the employment report as well as the Fed meeting. Today we see the S&P/Case-Shiller index, Chicago PMI, and CB’s consumer confidence for the month of October, along with the weekly report on US crude oil supplies by the American Petroleum Institute.
For the Eurozone yesterday, data suggests that the European Central Bank’s (ECB) decision to take a dovish stance was justified. Year-on-year German consumer prices declined to 1.6% from 1.7%, with a slow down in the service sector. This should ease Bundesbank inflation concerns.
A general beating of expectations in Euro business, industrial, and service data does, however, place pressure on Draghi’s dovish stance. This was not reflected in the market, however, as the Euro weakened against the Pound, pushing to highs of 1.1367 before plateauing around the 1.1340 mark. Against the Dollar, a similar weakening in the morning but the Euro did recover to close the day 1.1642.
Further, the Euro selling pains were eased by calming of Catalan fears with a decline in Spanish bond yields. Today we have key data in the form of Eurozone GDP and CPI out in the morning where any change away from expectations will be sure to keep the market on their toes.
Eurozone data will dominate market focus today, culminating in a quarterly GDP report that is expected to reaffirm the region’s healthy recovery.
Data To Watch:
10:00 EUR Gross Domestic Product s.a. (YoY) (Q3)
10:00 EUR Gross Domestic Product s.a. (QoQ) (Q3)
10:00 EUR Unemployment Rate (Sep)
10:00 EUR Consumer Price Index (YoY) (Oct)
10:00 EUR Consumer Price Index – Core (YoY) (Oct)
13:00 USD S&P/Case-Shiller Home Price Indices (YoY) (Aug)
13:45 USD Chicago Purchasing Managers’ Index (Oct)