Markets clamour for US rate hike
UK unemployment rates have fallen to 11-year lows of 4.8%. Nonetheless, there are signs that the labour market might be cooling, with employment growth slowing and an increase of 9,800 in the claimant count. Accumulated earnings growth remained at 2.3% with no significant inflation implications for now as short-term price patterns are likely to be driven by trends in import prices. In line with Governor Carney’s MPC statement, Bank of England (BoE) Deputy Governor Cunliffe reiterated that there will be little tolerance of inflation rising above 2%. Sterling fell as far as 1.2419 against the Dollar before recovering to open at 1.2463 this morning.
The Dollar briefly hit a 13-year high on a trade-weighted basis before being subjected to a modest round of profit taking, causing the Dollar to weaken. Markets are now pricing in a 90% chance that the Fed will hike rates in December but there were no significant implications for the Dollar.
Philadelphia Fed President Harker maintained his preference for a further 0.25% increase in rates, adding that the Fed might need to increase the frequency of rate hikes if Trump’s infrastructure spending plan is implemented. The industrial production data was also slightly weaker than expected with a reading for the NAHB housing index which met expectations.
Today’s the US inflation data will be important for rate expectations and markets will be monitoring Yellen’s congressional testimony very closely for policy hints and comments on the potential implications of a looser fiscal policy. The Euro held just below 1.0700 against the Dollar today ahead of these two important risk events.
The Euro was undermined by ongoing political concerns ahead of the Italian political reform referendum due in just over two weeks. The European Commission has warned that eight Eurozone countries are at risk of breaking EU rules because they have budget deficits greater than the permitted 3% margin. With some of the culprits having already had EU fines waived for missing budget targets last year, Euro critics will argue that the EU loses credibility if it agrees rules and then fails to enforce them.
Data to watch: 9am UK Retail Sales, Month on Month, Year on Year & excl. Fuel. 10am Euro Consumer Price Index & Core CPI Month on Month, Year on Year. ECB Monetary Policy Meeting Accounts. 1.30pm US Housing Starts & Building Permits. Initial & Continuing Jobless Claims. Consumer Price Index & Core CPI Month on Month, Year on Year. Philadelphia Fed Manufacturing. 3pm US Fed Chair Yellen testifies.