Inflation held at 3%, but will wage growth gain ground?
UK consumer inflation fell short of expectations, printing at 3.0% for October. Consensus forecasts expected 3.1% whereas the BoE had pencilled in 3.2% at the time of the rate hike. The core rate was also slightly below consensus forecasts at 2.7%. Food-price inflation advanced to above 4.0%, but energy prices declined slightly. Sterling suffered as expectations of further monetary policy tightening waned in the near-term.
The Euro rose to 3-month highs above 1.1175 against Sterling, although the Pound showed more resilience against a weaker dollar with further support below 1.3100 and an advance to 1.3170. Political considerations remained an important focus, although the government did not lose any votes on the first day of the EU Withdrawal Bill debate.
BoE Deputy Governor Cunliffe, who voted against the November rate hike, stated the central bank could afford to wait for clear evidence that wages growth is picking up before increasing rates. He also stated that domestic inflation pressure is low and that Sterling depreciation had not caused any second-round effects.
Sterling was little changed on market open, ahead of earnings data with global growth doubts limiting UK currency support.
The US Dollar trades on a soft note again today with doubts about tax reform appearing to be the main catalyst. Similarly, stronger than expected producer price inflation data did little to stem the currency’s losses.
Federal Reserve (FED) President, James Bullard, said the Fed should keep interest rates on hold due to inflation that has headed toward the downside this year. As a non-voting member, his view isn’t seen as core to the Fed policy path.
In what will be a pivotal test for the prospects of a December Fed rate hike, today’s CPI data also comes at a time when there is mounting evidence pointing to a more structural low inflation problem in the US economy as aforementioned. The CPI result is seconded by retail sales and the New York Empire State manufacturing index.
The Euro yesterday showed a strong outing as the single currency strengthened against its peers pushing past the 1.18 Dollar barrier whilst lows of 1.1137 were seen against the Pound.
This net Euro came from the firm readings for German and Eurozone GDP data. German GDP beat consensus expectations of 0.6% to finalise at 0.8% q/q whilst Eurozone GDP rose 0.6% q/q and rose 2.5% y/y in Q3. This coupled further with German ZEW Investor confidence rising to a 6 month high of 18.7 for November provided further investor confidence for the Euro and will favour the hawk’s argument for winding in Quantitative Easing going forwards.
The European Central Bank (ECB) communication conference yesterday hosted several blockbuster names including ECB president Draghi. In light of firm data, Draghi still posed arguments to support his policy stance asking a rhetorical question; Why would he change a policy that has proved effective?
Data To Watch
07:45am EUR Consumer Price Index (EU norm) (YoY) (Oct),
n/a EUR 10-y Bond Auction,
09:30am GBP Average Earnings including Bonus (3Mo/Yr) (Sep), GBP ILO Unemployment Rate (3M) (Sep),Average Earnings excluding Bonus (3Mo/Yr) (Sep), Claimant Count Change (Oct),
10:00am GBP MPC Member Haldane Speech, EUR Trade Balance n.s.a. (Sep), EUR Trade Balance s.a. (Sep), EUR ECB’s Praet Speech,
01:00pm GBP MPC Member Broadbent Speech,
01:30pm USD Retail Sales ex Autos (MoM) (Oct), USD Retail Sales control group (Oct), USD Retail Sales (MoM) (Oct), USD Consumer Price Index Ex Food & Energy (MoM) (YoY) (Oct), USD Consumer Price Index n.s.a (MoM)(YoY) (Oct), USD Consumer Price Index (MoM) (Oct),
03:30pm USD EIA Crude Oil Stocks change (Nov 10)