May to press ahead with Tuesday vote
UK housing data fell well below a forecasted 0.5% increase with a 1.4% monthly decline in November and the annual increase printed at 0.3%. Inflation expectations for the year ahead rose to 3.2% from 3.0% previously. Government sources continued to indicate that the parliamentary Brexit vote would proceed on Tuesday despite strong pressure to delay as there was no evidence the House of Commons would pass the motion. Weak global risk appetite hampered the Pound; the Euro pushed to the 1.1170 area but there was some support around the 1.2700 area against the Dollar given wider US losses.
Sterling remains on the defensive this morning as political uncertainty dominates. There has been renewed speculation that Theresa May would face a leadership challenge if the government loses Tuesday’s vote. Sterling has edged higher against the Dollar but has fallen to 11-week lows against the Euro, around 1.1140.
Last week saw the US NonFarm Payrolls slightly missing expectations with 155K jobs gained and Average Hourly Earnings rising by only 0.2% month-on-month. The news slightly dents the chances of multiple rate hikes in 2019.
Federal Reserve Governor Brainard stated that gradual rate increases are appropriate in the near term and expected solid growth next year, although she also commented that some of the tailwinds are fading. The gradual rate path would also be increasingly dependent on the evolving US outlook. St Louis Fed President Bullard stated that rates were already above neutral and that rates should be held steady as the yield curve is signalling that the central bank has gone too far.
Tensions between the US and China continue as Huawei’s CFO Meng remains in custody in Canada, upon a US court’s request. US Trade Representative Robert Lighthizer claims the legal proceedings have nothing to do with trade talks, but China has a different perspective. The situation weighs on markets.
The Dollar remains under pressure today as Fed expectations declined as markets monitored European political developments.
On the data front, Eurozone gross domestic product (GDP) rose by just 0.2% in the July-September period, the lowest quarterly result since late 2014. The annual GDP figure just missed consensus at 1.6%, down 0.1% from last month’s data. The Euro pushed above 1.1400 against the Dollar following the release of US employment data, although it again failed to sustain the move.
Whilst the Euro again pushed higher late in the session, there was further selling interest above 1.1400 as markets remained uneasy surrounding the European political outlook. Late in the day, Annegret Kramp-Karrenbauer (AKK) was elected as the German CDU party leader. On balance, it means policy continuity and makes it more likely that Merkel will stay as Chancellor until 2021, which is positive for EMU reforms.
Data to watch:
06:30 GBP MPC Member Cunliffe Speech
06:30 CAD BoC Gov Council Member Lane Speech
06:45 CHF Unemployment Rate s.a (MoM) (Nov)
07:00 EUR Current Account n.s.a. (Oct) (Germany)
08:00 EUR ECJ Ruling on Article 50
09:30 GBP Manufacturing Production (MoM) (Oct)
09:30 GBP Industrial Production (MoM) (Oct)
09:30 GBP Manufacturing Production (YoY) (Oct)
09:30 GBP Gross Domestic Product (MoM) (Oct)
12:45 CAD BoC Gov Council Member Lane Speech
13:15 CAD Housing Starts s.a (YoY) (Nov)