Good morning
Higher US PPI yesterday was offset in part by a worse than expected initial claims reading which led to a bit of confusion as to which direction USD would take. In the end it seems the USD bulls have won, USD strength overnight took EURUSD to 1.0460, GBPUSD to 1.2660 and USDJPY up around 153.00.
Earlier this morning we had disappointing UK data, both GDP and industrial production were below estimates, GDP contracted by 0.1% last month against a hopeful +0.1% expectation. GBP lost further ground, GBPUSD currently 1.2630 and GBPEUR which just overnight had been 1.2150 is now 1.2065. UK inflation expectations are out later this morning, BoE’s Bailey has said that inflation has fallen more quickly than previously expected so it will be interesting to see whether this reading reflects that.
What impact this has on next weeks BoE rate announcement remains to be seen. We do have a host of UK data next week before the rate meeting including PMIs, unemployment and inflation. We’re expecting BoE to keep rates unchanged next week but a set of weak numbers will give them more reason to consider another cut.
Yesterday SNB surprised with a 50bps rate cut when a 25bps was widely expected. CHF weakened as a result, GBPCHF traded up from 1.1265 to 1.1350 although the GBP weakness since sees the pair back to 1.1285. USDCHF has held and indeed built on its gains having traded up from 0.8820 to a high so far of 0.8935. Incoming SNB Chairman Schlegel talked of the potential for further cuts which could see rates at zero although he did mention that SNB don’t like negative rates. They are still concerned about CHF strength and may turn to currency intervention to halt or slow further appreciation.
ECB didn’t cause any similar upset, reducing rates by the expected 25bps for the third successive meeting to take rates to 3.15%. Also as expected, Lagarde mentioned the data-dependent, meeting by meeting approach to rates. However her mention that a 50bps rate cut had been discussed, plus her acknowledgement that inflation risks are now two-way, ie no longer just to the upside, did add a dovish tone to her statement.
Overnight the Central Economic Work Conference in China ended without any clear stimulus plans other than calling for a more proactive fiscal policy. Those hoping to see additional stimulus measures announced were left disappointed, Chinese stocks moved lower by some 2-2.5%, as did Hong Kong’s Hang Seng index. We are expecting to see rate cuts in China next year, and in March there is talk that the National Peoples Congress will bring a more comprehensive stimulus package, by which time Trump’s new tariffs may be in place.
Spurs were in action yesterday evening, when I say ‘action’ I mean sluggishly scraping a 1-1 draw against Rangers. Chelsea braved the long journey and -11°c temperatures to win their Europa Conference league match, they are favourites to win the tournament and with their current form it would be difficult to bet against them. This weekend Spurs will be looking to stop their winless streak against bottom placed Southampton, failure to get three points could well put pressure on Ange’s managerial role. The Manchester derby will be the highlight of the weekend.
England’s cricket team start the third test match against New Zealand this evening, we’re hoping for another win in the series, New Zealand will be desperate to get revenge for their heavy defeat in the last match.
We’re quickly heading towards Christmas, I always feel we should be winding down by now but there is far too much in the way of economic data and announcements next weeks for us to do that. I’ve mentioned the string of UK data and the BoE rate meeting, we’ll also have US PMIs, retail sales and GDP, CAD inflation, NZ GDP and trade numbers, BoJ rate meeting and of course the main event, the FOMC rate meeting.
Have a great day, and a great weekend as and when it comes
- 09.30 UK BoE inflation expectations
- 11.00 EU industrial production
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