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Public-owned RBS fails stress tests…

Public-owned RBS fails stress tests…

UK lending data showed an overall increase of GBP4.9bn for October from the previous GBP4.7bn. Consumer credit also highlighted an increase in the overall pace of borrowing, now at 11-year highs. Sterling managed to break the 1.2500 level against the Dollar again before edging lower as month-end selling pressure started to have a significant impact in undermining the UK currency. Weaker oil prices also contributed to this negative impact. Consumer confidence data printed below consensus with a decline to -8 from -3 which will cause some concerns over spending trends.

The Royal Bank of Scotland failed the latest Bank of England stress test. Consequently Sterling edged slightly lower with the outlook for financial stability remaining challenging according to the bank. The Pound opened this morning at 1.1746 versus the Euro and 1.2477 against the Dollar.

The German annual inflation rate held at 0.8% for November and services sector growth pace slowed, which should dampen immediate concerns of a sharp increase in the inflation rate. European politics is a key focus with the Italian referendum taking place this weekend. The Eurozone data will be watched closely today with markets also on alert for comments from European Central Bank President Draghi.

The Euro still languishes against the Dollar, retreating to lows just below 1.0570 yesterday, but resisted losses below Monday’s lows, triggering some short covering and a move back above the 1.0600 level. The EURUSD rate is at risk of high volatility today due to the OPEC meeting and month-end selling pressures.

US third quarter annualised GDP growth was revised up to 3.2% from the previous estimate of 2.9%, beating expectations of 3.0% as consumer spending estimates were increased. Gross domestic prices had a small downward revision, dampening inflation expectations slightly. The Case-Shiller National house-price index rose 5.5% in the year to October and prices also broke above the previous peak seen in 2006. Consumer confidence increased sharply to 107.1 from a revised 100.8 the previous month – the highest reading since mid-2007.

Fed Governor Powell commented that the case for a rate rise had clearly strengthened since the previous meeting. This has reinforced expectations of a December increase, although this has already been priced-in and the 2017 outlook will be crucial for the US currency.

US personal income and spending gains should remain robust today. PCE inflation is a key consideration given the shift in market sentiment post-US election.

Data to watch: US Opec Meeting. 7am UK Financial Stability Report & Bank Stress Test Results. 8.55am German Unemployment Rate & Change. 10am EUR Flash Nov Consumer Price Index & Core CPI. 12.30pm Draghi speech. 1.30pm US ADP Employment Change, Oct Personal Income & Spending, Personal Consumption Expenditures & Core PCE. 2.45pm US Chicago PMI, Pending Home Sales. 4pm Eur German BUBA President Weidmann speech. 4.45pm FOMC Member Powell Speech. 7pm Beige Book.

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