UK jobs and Fed rate decision dominate
UK CPI rose by 0.3% in November and the year-on-year rate nudged up to 3.1%, the highest since March 2012. The core rate held at 2.7% which was in line with expectations. The Bank of England had expected a peak in October but this increase will cause some unease with input prices also rising strongly for the month. There was no real change in bond yield expectations.
The Pound pushed higher after the data release but swiftly retreated after a spat between Brexit Secretary Davis and EU Commissioner Verhofstadt. Michel Barnier, the EU’s chief negotiator, stated that there was no possibility of a full trade agreement before Brexit takes place and will hold the UK to commitments pledged so far. Markets were also concerned that Theresa May could lose a parliamentary Brexit vote on Wednesday which would further destabilise the government.
Sterling retreated to below 1.3320 against the Dollar ahead of the latest jobs market report while the Euro found support just below the 1.1360 level.
President Trump suffered a major setback yesterday evening as the state of Alabama, historically a Republican state, elected a Democrat, Doug Jones. This is the first time in 25 years that a Democrat has been elected to the Senate from Alabama and many believe this could signal a political upheaval nationally and internationally. More worrying for the Republicans, however, is this puts the opposition only two seats from a majority going into 2018.
The big story today, which has hyped up as the main headline for the US since the nonfarm payrolls and unemployment report last Friday, is the FOMC meeting and inflation report. Annual inflation, on the back of 2% year-on-year gain in October, is expected to rise 2.2%.
More importantly, however, the Fed is expected to raise rates for the third time this year to 1.5% from 1.25%. This has been forecasted for some time but the market has not priced it in; does this mean that the Fed could take a Dovish approach?
German inflation for November was confirmed at 1.8% year-on-year this morning which was in line with consensus forecasts. The breakdown revealed the rebound in energy price inflation was the main factor for the uptick.
This gives Draghi a backbone when regarding his expansionary policy as the German rate remains above the Eurozone’s. In terms of other EU countries that are struggling, a strong German economy will be called upon to carry the weight of the Eurozone as the others catch up.
Either way, Draghi has something to argue with as he defends his policy, although with weak wages growth and companies running into capacity constraints, Germany faces pressure to commit to an end date for Quantitative Easing.
Data To Watch:
06:00 EUR Wholesale Price Index (YoY) (Nov)
06:00 EUR Wholesale Price Index (MoM) (Nov)
07:00 EUR Harmonised Index of Consumer Prices (YoY) (Nov)
09:30 GBP Claimant Count Change (Nov)
09:30 GBP ILO Unemployment Rate (3M) (Oct)
10:00 EUR Industrial Production w.d.a. (YoY) (Oct)
10:00 EUR Industrial Production s.a. (MoM) (YoY) (Oct)
13:30 USD Consumer Price Index (MoM) (Nov)
13:30 USD Consumer Price Index Ex Food & Energy (YoY) (MoM) (Nov)
15:30 USD EIA Crude Oil Stocks change (Dec 8)
19:00 USD FOMC Economic Projections
19:00 USD Fed Interest Rate Decision
19:30 USD FOMC Press conference
23:00 USD FOMC Member Brainard Speech