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Inflation day

Inflation day

GBP
Sterling has stabilised today after a weak end to last week. David Davis stated that the UK won’t pay the Brexit divorce bill if they fail to reach a trade deal with the EU by March 2019 and kept the British Pound under some selling pressure yesterday.

UK CPI inflation is expected to come in at 3.0% year on year. The consensus is that inflation is set to peak and slowly return back towards 2.0% as the post-Brexit GBP depreciation shock subsides. However, any positive surprises over the coming months, or signs of inflationary persistence, would alter the Bank’s growth-inflation trade-off in favour of further tightening. In this scenario, calls for a second rate hike in May could gain traction, leading to a Cable bounce back to the 1.3500 area.

USD

With very little economic data in the lead up to the FOMC meeting tomorrow, the market’s eyes remain focused on this event. Expectations still reside with a 25 bps hike given the strong November payrolls report and unemployment rate remaining firm at 4.1%. The monetary policy discussions will begin today, however, as the Federal Reserve convenes in Washington. Investors will be on the lookout for any developments.

Republicans are hopeful for President Trump to sign the tax reform come December 20th as they hold a final vote in both the House and the Senate next week. There are still rocky roads ahead, however, as Senate Republicans and the House still differ in their opinions and are struggling to find a compromise.

EUR

The Euro strengthened against a basket of currencies yesterday as Angela Merkel assured markets that the German coalition talks should be carried out quickly. The single currency has taken some strength off the back of the political reassurance.

Bloomberg’s survey of forecasts for the Eurozone showed improving growth momentum (2018 and 2019 forecasts marked up 0.2 points to 2.1% and 1.8% respectively on average), which may be reflected in the European Central Bank’s (ECB) tone in Thursday’s policy statement. Inflation remains below target through 2019 though, and rate increases remain a 2019 story, according to the consensus outlook, which largely echoes our own view on ECB policy prospects.

Data To Watch:
09:30 GBP Producer Price Index – Output (YoY) (MoM) n.s.a (Nov)
09:30 GBP PPI Core Output (MoM) (YoY) n.s.a (Nov)
09:30 GBP Producer Price Index – Input (MoM) (YoY) n.s.a (Nov)
09:30 GBP Consumer Price Index (MoM) (YoY) (Nov)
09:30 GBP Core Consumer Price Index (YoY) (Nov)
10:00 EUR ZEW Survey – Current Situation (Dec)
10:00 EUR ZEW Survey – Economic Sentiment (Dec)
19:00 USD Monthly Budget Statement (Nov)
19:00 EUR ECB President Draghi’s Speech

 

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