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Will Draghi rein in the spending?

Will Draghi rein in the spending?

GBP
Sterling derived support in a respite from negative Brexit news yesterday, with the help of forecast-beating Q3 Gross Domestic Product (GDP) figures, which increased speculation surrounding a Bank of England (BoE) rate hike at the November meeting.

Sterling is still underpinned by positive Q3 GDP figures and is adding to yesterday’s strong gains. Sterling is now trading around the level of 1.3280 against the Dollar. The rally is largely on the back of USD weakness.

Focus now shifts towards the UK Confederation of British Industry (CBI) realised sales data, especially after the latest report stating that the UK retailers cut jobs in Q3 at the fastest pace since 2008.

EUR

A new record high for German IFO index of business sentiment was set as the index rose to 116.7 in October. Although this is positive for the Euro’s underlying sentiment, it was overshadowed by today’s European Central Bank (ECB) monetary policy meeting, press conference, and the unofficial Catalan parliament session.

At 12:45pm, the ECB will announce its latest decision on interest rates but the Market hopes to hear the future of the Asset Purchase Scheme. The following press conference, led by Draghi himself, has the potential for huge volatility if his forward guidance is seen as maverick. Markit sentiment is that Draghi will prolong his asset purchasing programme by nine months, halving the monthly bond purchasing to €30bn (£27bn). The question here lies; how much and for how long?

To sanction a tighter monetary policy, Draghi would have liked to have seen indications of price increases in the Eurozone, suggesting strong underlying growth, but this has not been the case. This could tip Draghi towards a dovish stance but with the risk of unsuitable bond purchases increasing, this may steer him towards a more hawkish approach.

Also today, we have the Catalan plenary session whereby the Parliament will resolve whether independence is suitable. That said, with the Spanish government tomorrow deciding on an administrative takeover of the region, this is unlikely.

USD

The US Dollar is broadly weaker today despite upbeat economic data. This took the form of new orders for U.S. capital goods, which rose more than forecast by 2.2% last month, while new home sales unexpectedly jumped to a near 10-year high in September.

The Greenback rally has run out of steam slightly of late after the tax reform proposed by President Trump seems to face more difficulties than initially estimated among Republicans, although everybody in the US Senate agreed on the deadline to pass the legislation by year-end.

The US data space today features the release of weekly jobless claims, goods trade balance, prelim wholesale inventories, pending home sales, and the speech by Minneapolis Federal reserve member N.Kashkari.

Data To Watch:

07:00 EUR Gfk Consumer Confidence Survey (Nov) – Germany
12:45 EUR ECB Interest Rate Decision
12:45 EUR ECB Deposit Rate Decision
13:30 USD Continuing Jobless Claims (Oct 13)
13:30 USD Initial Jobless Claims (Oct 20)
13:30 EUR ECB Monetary policy statement and press conference
15:00 USD Pending Home Sales (YoY) (Sep)
15:00 USD Pending Home Sales (MoM) (Sep)
15:30 USD FOMC Member Neel Kashkari Speech

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