Waiting on Mario
The pre-event malaise that falls over currency markets in the lead-up to big announcements is starting to creep in. A poor US manufacturing release yesterday afternoon twinned with some profit taking on dollar positions has just put the brakes on some of the recent volatility ahead of a very important 60 hours or so.
The euro was able to fight back yesterday morning following both strong German and Eurozone unemployment numbers as well as thoughts that today’s Eurozone inflation number will have probably seen an increase; it’s too late to pull back from the expectations that have been set for tomorrow’s meeting of course but it will be interesting to see whether any near term improvements in prices is mentioned within the accompanying press conference.
Most euro crosses, including GBPEUR, are a guessing game at the moment although we don’t expect much movement in the pair before Draghi and the European Central Bank lay their cards on the table come Thursday lunchtime.
UK data once again mixed
GBP has managed to bounce back from its brief foray below the 1.50 level against the USD despite a poor manufacturing number yesterday. Within the release, news from manufacturers was mixed with lower import prices and increased orders from the US, China, Germany and Japan seen as positives but a slowing of domestic orders and longer lead times hurting productivity. Swings and roundabouts some would say, but decent enough given the weakness in our major export markets.
Today’s construction PMI should benefit from the recent warm weather and we look for a reading around the 58.0 mark denoting strong, broad based expansion.
Shops cutting margins hard
Prices of houses may be staying strong but elsewhere, prices in the UK are coming lower if the latest numbers from the British Retail Consortium are to be trusted. The latest index of shop prices from the BRC dropped to a record 2.1% in November. The data period does not include the recent ‘Black Friday’ giveaways but anyone who has set foot in a shopping centre in the past three weeks will have seen prices coming lower. Maybe this is a way for retailers to blend spending and diminish revenue volatility, maybe it’s a way to convince people that they don’t need to trample each other for a toaster five weeks before Christmas Day.
The relationship between the BRC’s number and the official CPI announcement is good but outright deflation of 2.1% remains a long way off.
The Day Ahead
The day ahead is an interesting one. Questions we are asking ourselves include whether the latest ADP number will catch up with last month’s bumper 271,000 payroll print or show softness heading into December and, while the Bank of Canada is unlikely to change policy today, what will they have to say about their newly weakening currency?
We also have speeches from Fed members Tarullo and Williams and Chair Yellen.