BoE Financial Stability Report in Focus

With consumer spending and business investments driving the UK economy during the third quarter and the BoE in no rush to raise interest rates, British economic recovery is set to gain further traction during the final quarter of 2013. Against this backdrop, the BoE FintechToday Stability Report today will gain attention for clues to the health of the financial sector, especially in the wake of spiraling domestic house prices. Meanwhile, downbeat German employment numbers for November have once again reinforced concerns of a faltering recovery in the currency bloc’s largest economy. The uneven nature of recovery in the Euro zone has increased pressure on the ECB to take more unprecedented steps.

Pound Sterling – UK Markets

Buoyed by an upbeat third quarter domestic growth report, the Pound strengthened against its counterparts yesterday and rose to a ten-month high, breaching the 1.63 mark against the greenback. Although GDP numbers for the third quarter remained unchanged from earlier estimates, the report indicated swelling confidence among British consumers and businesses alike, with household spending rising at the fastest pace since the second quarter of 2010 and business investment also picking up. However, data from the CBI showed that retail sales in the UK slowed unexpectedly this month, as mild weather conditions deterred shoppers from buying winter clothes. The Pound has continued to tread higher against the greenback in today’s trading session ahead of the Financial Stability Report later today, which will aid investors in gauging the BoE’s outlook for the financial sector. Additionally, market participants will stay watchful of the central bank’s view regarding the UK’s housing market. With no US economic data today, on account of the Thanksgiving Holiday, important macro releases from the Euro zone will drive risk sentiment in markets today.

US Dollar – US Markets

The surprisingly upbeat US initial jobless claims numbers and the upwardly revised consumer sentiment print for November lifted the US Dollar against most of its peers yesterday. The recent recovery in the labour market seems to have gained traction with the unexpected decline in initial claims for jobless benefits during the last week. The positive labour data is expected to keep markets in a cheerful mood ahead of the non-farm payrolls report next week. Additionally, the Reuters/Michigan consumer confidence report pleasantly surprised markets, especially in the aftermath of another similar report painting a grim picture of the economy earlier in the week. However, the higher than expected drop in durable goods orders for October restricted the greenback’s gains against its peers yesterday. Meanwhile, the US Dollar has moved lower against the majors this morning. With a holiday in the US today, movement in the greenback will be driven by significant macro releases from across the Atlantic in today’s session.

Euro – European Markets

The common currency traded broadly lower against the majors yesterday, largely on the back of upbeat global economic data. Meanwhile, buoyed by the robust labour market and positive income expectations, consumer confidence in Germany climbed to the highest level in over six years for December. In a major development in Italy, former Prime Minister, Silvio Berlusconi, was expelled from parliament following a vote in the Italian Senate. The single currency is trading lower against its counterparts this morning. Data just out has shown deterioration in the German labour market while Spanish consumer price inflation picked up for November. With recent dovish comments by ECB officials hinting at the prospect of negative deposit rates, a pickup in the inflationary trend will soothe market nerves, at least in the near term. In this context, the German consumer price inflation report today and tomorrow’s aggregate Euro zone inflation print will be closely scrutinised by investors for further direction. Additionally, a string of Euro zone sentiment indicators later today will prove crucial for the single currency against the majors.

Other Currencies – Highlights

The Swiss Franc has nudged higher against the US Dollar this morning following the release of upbeat domestic GDP numbers for the third quarter. Driven by a pickup in exports, Switzerland’s economy expanded more than economists’ forecasts. However, downside risks for the economy continue to persist after a report yesterday indicated a slowdown in private consumption in Switzerland, primarily due to the weakness in the retail sector. With no major domestic economic data on tap, investors in the Swiss Franc will track Euro zone macro indicators in the session ahead for further direction to risk appetite. Additionally, tomorrow’s KOF leading indicator will be closely followed by investors for hints on the future trends of overall economic activity in Switzerland.