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Euro strengthens on Merkel’s life line

After struggling to form a coalition with the Free Democratic Party, German Chancellor, Angela Merkel was thrown a life line at the end of last week as the Social Democrats offered her an alliance. Negotiations between Merkel and the SPD have started to take place and a coalition agreement between these two parties will offer Germany some stability.

SPD and Merkel have previously formed a coalition, called the grand coalition. However, after the disappointing election results, the SPD did not want to enter into another coalition instead being Merkel’s main opposition in Government. As talks broke down and the growing risk thst the Alternative for Germany would gain further support if a snap election is called, the SPD have decided to renew the grand coalition. The Euro has boosted on the news, after tumbling last week over risks a snap election might be called.

Back in the UK, Brexit negotiations are set to continue this week as European Council President, Donald Tusk, has given the UK a deadline of the 4thDecember to solve the main sticking points; the divorce bill, Northern Ireland board and citizen’s rights. UK Prime Minister, Theresa May has already gained approval to raise the divorce offering to 40 billion Euro, if it will allow the UK to progress the talks onto trade. However, the Irish board is set to remain an obstacle, as Ireland threaten to hold up talks until this is solved. Although, it is not believed this will be solved until further down the lines in the talks. The EU members will decide on the 14th December in the next EU summit whether enough has been done to progress the talks further.


Quiet start to the week with no high tier data released on the economic docket. The Bank of England Chief Economist, Andy Haldane will be speaking in Birmingham about the Bank of England’s education and communication strategy. Across the pond, FOMC member, Neel Kashkari will be speaking at the Winona State University’s Town Hall Forum.


The UK are set to release the BOE financial stability report and bank stress test results. These releases will be followed up by a press conference with BOE Governor Mark Carney. Across the pond, Jerome Powell will be testifying his nomination as Chair of the Federal Reserve before the Senate Banking Committee.  FOMC members William Dudley and Patrick Harker are set to speak. Dudley will be delivering the opening remarks at the annual conference on the evolving structure of the US treasury market, whilst Harker will be speaking at an event hosted by the Federal Reserve Bank of Philadelphia on financial safety for the aging population. The US will also release the Conference Board Consumer Confidence Report.


On Wednesday, the Eurozone will be releasing the German Prelim CPI and the Spanish Flash CPI, expected to post 0.3% and 1.7% retrospectively. Back in the UK, BOE Governor, Mark Carney will be speaking about the fair and effective markets review at the Fixed Income Currencies and Commodities Markets Standards Board. Deputy Governor, David Ramsden will also be taking part in a panel discussion at the conference. Across the pond, the US will be releasing the prelim GDP figure, expected to post 3.3%, as well as the pending home sales figure, forecasted to post 1.1%. Federal Reserve Chair, Janet Yellen will be testifying before the Joint Economic Committee of Congress on the US economic outlook.


The Eurozone will release the CPI Flash Estimate figure, expected to post 1.6%. Core CPI, which excludes foods, energy, alcohol and tobacco, is forecasted to post 1%. Inflation in the Eurozone is still registering below the ECB’s target of 2%. The Retail Sales figure from the Eurozone’s largest economy, Germany, is also scheduled to be released at 0.3%. In the US, the Weekly Unemployment Claims figure is expected to post slightly higher than last week at 241K. Two FOMC members will be speaking. Randal Quarles at the Financial Stability and Fintech Conference about payment systems, and Robert Kaplan will be taking part in a panel discussion at the Real Estate Council in Dallas.


Friday sees a busy end to the week with the release of Manufacturing PMI’s from the Eurozone, UK and US. From the Eurozone, four of the largest economies; Spain, France, Italy and Germany will also be releasing their individual country manufacturing PMIs, all expected to show expansion within the sector. The Eurozone PMI is forecast to remain at 60. The UK Manufacturing PMI is expected to bounce up slightly from last month to post a bullish 56.6. Across the pond, the US ISM Manufacturing PMI is expect to drop slightly to 58.4. Also in the US, FOMC member Robert Kaplan will be taking part in a panel discussion at the Border Economic Development and Entrepreneurship Symposium.