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Markets brace themselves for ECB meeting and UK Bank Stress Test results

Markets brace themselves for ECB meeting and UK Bank Stress Test results

The Euro was on the receiving end of losses yesterday as the market is beginning to price in the press conference which will be held by European Central Bank (ECB) President, Mario Draghi on Thursday…expect to hear more about this as the week goes on, particularly any further hints towards an extension of quantitative easing or a further cut in the interest rate.

On a macroeconomic front, the only data we saw released from the bloc came from Germany and that was in the form of inflation figures. Ultimately, this was more or less a non-event and did not provoke any exciting price action. This is mainly because market sentiment remains against the Euro – only significant releases are going to dictate play.

Today the economic calendar is a little busier with the main releases to consider again being from Germany in the form of both unemployment data and manufacturing figures. German unemployment has sat at 6.4% since March of this year and the consensus reading isn’t anticipating anything different.

Yesterday saw UK Consumer Credit for October drop to £1.178bn from £1.303bn last month and Mortgage Approvals drop just shy of expectations. Whilst initially assisting the USD to within touching distance of 1.5000 twice, Sterling has recovered to open at 1.5100 this morning. Among issues that have drawn the attention of the Bank of England are fears of a potential bubble forming in the property market, a potential drought in bond-market liquidity, as well as the fact that unsecured debt is rising at pre-crisis rates.

Today the UK will announce the Bank Stress Test results which could impact both the GBP and the FTSE. Additionally, Mark Carney will be speaking and that is always unpredictable as he is prone to change his mind, recently indicating that we should expect rates to stay low until the middle of 2016 at least. With weak inflation there is no hurry to hike rates and he will also want to wait to see how the ECB and the US policy decisions play out.

As the markets gear up for the very likely rate hike on the December 16th, the Dollar traded strongly against the board yesterday. Against Sterling it was trading in the range of 1.50 while it dipped to 1.05 against the Euro. Manufacturing PMI data is out with Markit predicting a 52.6 outcome, while ISM expect a slight uptick from 50.1 to 50.3. Much of the data released from now until the 16th is unlikely to change the decision of the Fed should it not be too different from what the markets expect. The next main data release will be the Non-farm payrolls number out on Friday, which is expected to show another 200k jobs added to the US economy.

Data to watch: 9am UK Mark Carney speech. 3pm US Construction Spending &  Institute for Supply Management manufacturing PMI.

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