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Today’s Eurozone Inflation Reading To Cause Central Bank Chaos?

Today’s Eurozone Inflation Reading To Cause Central Bank Chaos?

Yesterday saw some much needed but surprisingly positive data from Germany in the form of unemployment figures. German unemployment has tracked at 6.4% since March of this year, but has finally made a breakthrough with the figure released showing us that the gap had closed to 6.3%. This is the lowest level of unemployment that Germany has had since the East and West reunited in 1990.

Unfortunately for the bloc currency it did little to manipulate the markets. Whilst the Euro did indeed manage to erase some of the losses that is has conceded over recent weeks, the overall trend remains to the detriment of the Euro with further losses expected ahead of Mario Draghi’s press conference tomorrow. Many market participants feel that Mr Draghi, the President of the European Central Bank, is likely to further cut the interest rate and extend the current quantitative easing package. Should he not either exclusively say that this will happen or drop almost concrete hints – we can probably expect the market to be disappointed. However, most feel he will simply be delaying the inevitable.

The inflation figure today could play a big part in the press conference, watch the print closely as it could give clear direction as to what sort of Mario Draghi will be meeting the press.

There was reassuring news from the UK yesterday morning as all seven major British lenders passed the banking stress tests, with only RBS and Standard Chartered having less capital than desired. However, both Banks were already in the process of amending this. Mark Carney also discussed the “countercyclical-capital buffer” which is intended to counteract banks’ tendency to boost lending in boom times, fuelling the expansion, and slash it in the bust, exacerbating any slowdown. It is currently held at zero percent for domestic exposures but will vary in future, both up and down, in line with the risk at the system level that banks will incur. Also, soft UK manufacturing PMI figures signalled a slowdown in Britain’s manufacturing sector in the month of November.

Dollar traded slightly weaker against the Euro as EURUSD returned back to 1.06 range yesterday. The Greenback also relinquished some of its gains against Sterling. Losses by the Dollar were somewhat exacerbated by a slightly lower than expected ISM manufacturing reading, but these were very limited as the Markit PMI reading was slightly better than expected coming in at 52.8, above 52.6 consensus.

Today the ADP employment change figure is out and this can be seen as “pre-data” before the more notable Non-farms on Friday as ADP gives a measure of the change in the number of employed people in the US. Janet Yellen will also be speaking twice today and the markets will be keen to see if there is confirmation of a December lift-off and any indication of the pace of subsequent rate hikes.

Data to watch: 9.30am UK PMI Construction. 10am EUR Consumer Price Index. 1.10pm US Atlanta Fed President Lockhart speaks. 1.15pm US ADP Employment Change. 1.30pm & 5.25pm US Fed Chair Yellen speaks. 8.40pm US San Francisco Fed President Williams speaks.

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