Tell Barnier these pockets are empty
UK retail sales data fell significantly short of expectations with a headline 0.8% decline for September following a revised 0.9% gain the previous month. YoY growth slowed considerably to a four-year low of 1.2% from 2.3%. The disappointing data seemed to justify underlying concerns on the strength of consumer spending, and Sterling dipped sharply lower.
The Bank of England’s (BoE) Deputy Governor Cunliffe stated that there were no sustained signs of consistent domestic inflation pressure. With Cunliffe sounding dovish, and the dovish comments from Sir Ramsden and Tenreyro earlier in the week, doubts have been raised on whether there will be a majority in favour of a rate hike at the November meeting.
Sterling remained under pressure as it tested the 1.1111 level against the Euro. Following the EU summit, there was no evidence of any significant headway or a move onto phase two of the Brexit negotiations, limiting Sterling support. GBPEUR held above 1.1111 in the morning session with Sterling testing support below 1.3100 on Dollar gains.
Initial jobless claims declined to 222,000 from a revised 244,000 the previous week, a 44-year low. Continuing claims also declined to the lowest level since 1973 which will only preserve labour market confidence and the wider US growth outlook.
The Philly Fed index strengthened to 27.9 for October from 23.8, maintaining a generally strong run. The employment component strengthened to record highs and expectations of near-term upward price pressures increased sharply. The Dollar was unable to gain any traction despite such positive data and the trade-weighted index dipped below 93.0.
In the Eurozone yesterday, the Catalonian regional government stated independence will be put on hold until next week. That said, the Spanish government did begin whittling down the autonomy as Prime Minister Mariano Rajoy set the stage to take control of the Catalan region.
Despite this uncertainty in the market, the Euro continued to show a resilient nature with solid support. Eyes will now start to turn towards the European Central Bank (ECB) policy meeting next Thursday which will give indications towards Draghi’s bond programme.
The Euro rallied to levels near 1.1860 against the Dollar before declining back towards 1.1800 and, against the Pound, levels managed to breach below the 1.1100 mark which was last seen early September.
Data To Watch:
n/a EUR European Council meeting
09:30 GBP Public Sector Net Borrowing (Sep)
18:00 USD Baker Hughes US Oil Rig Count
19:00 USD FOMC Member Mester speech
n/a USD Monthly Budget Statement (Sep)