Given the sombre events in Paris it is hard to know where to begin this morning. Perhaps the best place to start is by passing on the thoughts and sympathies to clients and others impacted by these truly terrible events.
Last week we saw a common theme across the data releases and rhetoric, one of disappointment. At the start of the week we once again saw Chinese data misfiring, this time inflation was lower, highlighting the global pressure on commodity prices.
Meanwhile, the UK’s headline unemployment figure looked positive. The headline unemployment rate fell to a fresh seven year low of 5.3%, surpassing expectations. However, the other metrics were not so positive and maybe one of the reasons the BoE were less than hawkish last week. The claimant count rose by more than expected whilst average earnings dropped and posted their lowest number since Q1 this year.
ECB President Draghi delivered a speech from Brussels, this helped push down the single currency to a three month low against the Pound as he continued his dovish remarks on the single currency zone. President Draghi reiterated the central bank’s stance from October’s meeting, where they would use all instruments available to ensure that an appropriate degree of monetary accommodation is maintained. The horrific events on Friday evening, in Paris are likely to knock confidence in the Euro area and provide a further motivation for the ECB to ease policy next month.
US data was also mixed but the sentiment remains that a rate hike is likely to emerge next month. On Friday, Cleveland Fed’s Loretta Mester, who will be a voter in 2016, told her audience, “My own assessment is that with the economic progress we’ve made and that I expect to continue, the economy can handle an increase in the fed funds rate”. Currently the market is pricing in a 62% chance that there will be a rate increase next month.
Much of the focus will remain on Paris and the market’s first opportunity to react to this weekend’s events. Investors will need to consider the impact on stability in the Middle East and the EU border policy. Meanwhile, ECB President Draghi is due to speak in Madrid and the Empire Manufacturing Index is due from the US.
Inflation data will take centre stage from both the UK and US. UK inflation is under scrutiny after the dovish comments from BoE Gov. Carney at the quarterly inflation report. Inflation is once again expected to be negative which will only dampen expectations for a rate hike. Also on the docket is the important German ZEW numbers. This is a survey of German institutional investors and analysts and their views on the economy.
The focus will be firmly on the US today as data and the FOMC minutes are set for release. Starting with data, the building permits and housing starts are hitting the wires with solid numbers expected from both. After the European markets close, the FOMC minutes are released. These could contain some key clues to the FOMC thought process at the stage of the year. The signposting for a December “lift off” has been done but how much conviction do the voting members share or are there a few holes that need covering up?
UK interest rate expectations could take a further dent today if the retail sales number does not surpass expectations. Retail sales make up a large part of the GDP and with the momentum in growth already slowing, it could further hinder this number. Retail sales are expected to decline by 0.4%, this is in large due to the Rugby World Cup sales in the previous month. Meanwhile, the weekly jobless claims and the Philly Fed manufacturing numbers hit the wires.
A quiet end to the week with ECB President Draghi once again taking the stand at the Euro Finance Week, in Frankfurt. Meanwhile, the UK’s public sector borrowing numbers are due to decrease from last month.