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Markets keeping calm and carrying on

Markets keeping calm and carrying on

The Euro was remarkably resilient in the wake of Friday’s atrocities in Paris, sadly indicating that the markets are getting used to events like this. Whilst there was some price movement, the Consumer Price Index (CPI) figures made less of an impact than usual despite showing a small improvement. The Euro finished the day at 1.4200 against Sterling, 40 pips higher than Friday’s close. This morning GBPEUR has already seen a peak of 1.4254.

In other news, the Finnish Government has accepted a petition from more than 50k citizens on Finnish EU membership. The Finns will now have a referendum on EU membership at some point. This movement has been snappily titled “FIXIT” and will be watched closely by supporters of a BREXIT.

Today, we’ll see the UK Inflation Report Hearing and CPI inflation figures. These are expected to have improved, which helps to fuel the talk of an interest rate hike. The release of the inflation figures today is important as the Bank of England (BoE) has cited low levels of inflation as one of their key concerns; if inflation prints lower this month it will add one more reason for the policymakers to back off from tightening interest rates. Yesterday we saw that Chinese bank lending was down by almost 50% month-on-month in October, the first drop since 2009. The rate of global growth has been raised as a concern and as a reason for delaying interest rate hikes – drops in Chinese investment would have repercussions beyond their borders as they indicate a slowdown in growth.

The US also have CPI data out which, like the UK, should support the rate hike argument should the figures look positive. The markets expect a slight uptick to 0.1% from 0.0%, and any results in line with, or better than, expectations are likely to fuel Dollar strength. Against the Euro the Dollar has been trading in the range of 1.0670 to 1.0810 for the past week now. Depending on the CPI we may see the lower level tested further. The rest of the week is quiet for the Dollar in terms of data releases. Consequently, any insight into the possibility of a rate hike will come from the CPI figure and speeches from Fed members.

Data to watch: 9am UK Inflation Report Hearing, 9.30am UK CPI, PPI. 10am Euro & German ZEW Surveys. 1.30pm US  CPI. 2.15pm US Industrial Production & Capacity Utilization.

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