Mayday, Mayday – Theresa under attack!
The Pound traded slightly stronger on the back of the employment data which unveiled average earnings creeping higher to 2.3% excluding bonuses. The GBPUSD is trading up 0.15% at around 1.3430 against the US Dollar following Dollar weakness overnight.
The UK Prime Minister Theresa May suffered a major revolt in the UK parliament yesterday after members of her own Conservative Party voted against her proposal, undermining her ability to push her vision of Brexit. May is travelling politically ashamed to Brussels for the European summit on Thursday.
The UK retail sales are expected to rise 0.4% m/m in November with the Bank of England staying tight on policy later today. For the Bank of England, the unanimous consensus is to keep rates on hold. After hiking rates last month and clearly communicating an “on-hold” policy stance, there’s very little need for the MPC to say much at all at this meeting, so we expect the statement to be largely copied/pasted with few changes.
The Fed raised interest rates by 0.25% yesterday as expected to 1.5%. Policy makers voted 7 – 2 in favour with the two doubters being strong doves Evans and Kaskari. Despite the rise in interest rates, the Dollar fell against its peers as Cable reached highs of 1.3444 and, against the Euro, 1.1843 highs were reached.
During the meeting of policy setters, Fed Yellen mentioned how low inflation continues to undershoot its target which caused Dollar weakness. Further, core CPI data was lower than consensus forecasts as November read 1.7% m/m, 0.1% lower than expected whilst CPI was 2.2%.
That said, it wasn’t all doom and gloom as the Fed readjusts its GDP forecast to grow 2.5% in 2018 from its 2.1% forecast in September, and 2.1% in 2019 from 2.0%. It is also expected that President Trump’s tax reform will lead to a more Hawkish Fed approach come next year. If a success, this will be reflected in the interest rate cycle.
The Euro continues to sideline against the US Dollar as Merkel continues to work diligently behind the scenes to put together a coalition government with the SPD.
The German economy grows at the fastest rate for over six-and-a-half years according to manufacturing and services activity surveys from IHS/Markit research.
German manufacturing purchasing managers index (PMI) rose to an all-time high in December standing at 63.3 while services PMI rose to 55.8, the highest level in the last 24 months.
Today, we will be looking at the Euro area PMIs for December to post a small decline in manufacturing and services to 59.5 and 55.7, respectively, in line with a decline in the leading order-inventory balance. The two-day EU summit also starts today, where EU leaders will have to decide whether sufficient progress has been made to enter phase two of the Brexit negotiations. This seems likely given the deal struck between the EU and UK government last week.
Data To Watch:
00:01 GBP RICS Housing Price Balance (Nov)
07:45 EUR Consumer Price Index (EU norm) (YoY) (Nov)
08:30 EUR Markit Manufacturing PMI (Dec)
08:30 EUR Markit Services PMI (Dec)
08:30 EUR Markit PMI Composite (Dec)
09:00 EUR Markit Services PMI (Dec)
09:00 EUR Markit Manufacturing PMI (Dec)
09:00 EUR Markit PMI Composite (Dec)
09:30 GBP Retail Sales (MoM) (YoY) (Nov)
09:30 GBP Retail Sales ex-Fuel (MoM) (YoY) (Nov)
12:00 GBP BoE Interest Rate Decision
12:00 GBP BoE Asset Purchase Facility
12:00 GBP Monetary Policy Summary
12:00 GBP BOE MPC Vote Unchanged
12:00 GBP BOE MPC Vote Hike
12:00 GBP Bank of England Minutes
12:00 GBP BOE MPC Vote Cut
12:45 EUR ECB Deposit Rate Decision
12:45 EUR ECB Interest Rate Decision
13:30 USD Retail Sales ex Autos (MoM) (Nov)
13:30 USD Retail Sales control group (Nov)
13:30 USD Retail Sales (MoM) (Nov)
13:30 USD Initial Jobless Claims (Dec 8)
13:30 USD Continuing Jobless Claims (Dec 1)
13:30 EUR ECB Monetary policy statement and press conference
14:45 USD Markit Manufacturing PMI (Dec)
14:45 USD Markit PMI Composite (Dec)
14:45 USD Markit Services PMI (Dec)