Still buying our way out of trouble
Q3 UK GDP showed growth of 0.4% and annual growth remained at 1.5%. The data tended to confirm expectations of subdued growth following significant downward revisions in Wednesday’s Budget forecasts. Although underlying Sterling sentiment was tainted, there was little immediate Sterling impact. The CBI retail sales survey bounced back to 26 for November, up from -36 in October. Retailers are much more optimistic on the outlook for the key Christmas shopping period.
EU Commission President Juncker is still undecided on whether Brexit talks can move on to trade talks but it won’t stop comments from being scrutinised given the pressure for a political breakthrough by the 13th of December. Although widely reported, Brussels has not actually received any formal financial settlement offer from the UK yet.
Sterling consolidated around 1.3300 against the Dollar with resistance seemingly set at 1.3330 while the Euro tested resistance above the 1.1235 level. Bond yield spreads moved against Sterling which sapped support and the Pound dipped lower on Friday initially moving below 1.3300 against the Dollar.
There seems to be an ongoing theme of doubting the capabilities of German Chancellor Angela Merkel. Yesterday, the Social Democrats reversed their stance of governing with the conservatives again as this refusal has been dropped. This triggered an unwinding of short Euro positions.
Firm Eurozone data in the form of; PMI manufacturing index increasing to 60.0 from 58.5, employment rising at its fastest pace since the millennium, and services PMI and PMI composite both strengthened for November. That said, it is starting to become a recurring problem in that inflation fails to correlate with supposedly strong data.
In the policy meeting yesterday, this scenario of inflation not meeting expectations was in question, specifically how to address this accordingly. Bank member Villeroy stated that the bank must continue its adequate stimulus whilst the minutes implied how the future outlook for inflation expectations was positive. There is, therefore, a potential here for tensions to rise amongst the European Central Bank (ECB) members.
The Greenback, tracked by the US Dollar Index, seems to have recovered towards the end of the week and is now looking to extend the positive mood above the 93.00 milestone.
The uptick in the Buck has been accompanied by a rebound in bond yields. On the other hand, the lack of headlines on the US tax reforms, in combination with the shortened trading week due to the Thanksgiving Day holiday, played against the Greenback and any attempt of recovery. In this regard, it is worth mentioning that the Republican House passed its tax reform bill, while the Senate’s version is expected to be considered after Thanksgiving. Both bills should reconcile at a later stage before sending it to President Trump for his signature.
In the US data space, only advanced Markit’s manufacturing/services PMI are due later today.
Data To Watch:
09:00 EUR IFO – Business Climate (Nov)
09:00 EUR IFO – Current Assessment (Nov)
09:00 EUR IFO – Expectations (Nov)
12:30 EUR ECB Vice President Vitor Constancio speech
14:45 USD Markit Manufacturing PMI (Nov)
14:45 USD Markit PMI Composite (Nov)
14:45 USD Markit Services PMI (Nov)
18:15 EUR ECB Cœuré Speech