A Cautious Start to the Week
Investor sentiment remains subdued at the start of the week in the wake of extreme geopolitical risks that came to the fore again on Friday. In economic news, the global calendar appears light today, with Euro zone’s final inflation figures due in a short while that could spur some market interests. Expectations are for today’s CPI update for October to stay steady from the earlier estimate and if Europe’s consumer inflation delivers a downside surprise, the news will add to further speculation that the ECB will step up its aggressive asset purchase programme.
In the UK, house prices declined in November, according to Rightmove’s monthly report, as sellers slashed prices in the lead up to the holiday season. Across the Atlantic, markets look forward to the release of minutes of the last FOMC meeting due in the mid-week
Pound Sterling – UK Markets
Rightmove, the property-website operator, earlier today reported that house prices in the UK fell in November ahead of the Christmas holiday period.
Amid no further economic releases scheduled today, market participants will await the next two big data points this week – inflation data and retail sales figures that could determine the BoE’s next course of action. The latest inflation figures due tomorrow will probably show that the consumer prices declined for a second month in October on an annual basis, as the nation continued to face headwinds from falling food and oil prices. A negative reading will add support to the BoE’s forecasts this month that inflation will remain below 1% until the second half of the next year. Against a backdrop of downward revision of the UK economic growth outlook, a negative CPI data print tomorrow could fuel speculation that interest rates could remain at rock-bottom right through 2016. Additionally, retail sales data scheduled later this week will be eyed to gauge whether the economy has recovered strongly at the start of the fourth quarter.
US Dollar – US Markets
The US Dollar continues to trade on a firmer footing against the shared currency this morning, amid mounting concerns of economic growth in the 19-nation currency bloc. Looking ahead, markets will continue to absorb the developments across the globe and await the Euro zone consumer price inflation data due in a short while for further direction. Meanwhile, the US docket is devoid of any notable economic data to trigger volatility in the currency pair today.
In the final session of last week, the US Dollar slightly retreated across the board after the US retail sales figures missed expectations for October following a surprise drop in retail sales. However, Michigan University’s consumer sentiment index rose to a four-month high for November encouraged by a stronger US labour market, low borrowing rates and cheap fuel costs. Moving ahead, the most important release this week will be the minutes from the October FOMC meeting. With the statement itself coming in more hawkish than expected, markets will focus on the meeting minutes for any further clues that could confirm a lift off in the Fed’s December meeting.
Euro – European Markets
The Euro lost ground against its major currency counterparts earlier today, amid fresh uncertainty among investors following renewed geopolitical tensions. The shared currency was already under pressure against the US Dollar last week owing to looming worries about the state of the global economy which were triggered by the release of Euro zone’s third quarter GDP estimate. The Euro area unexpectedly slowed in the three months to October, owing to a weak export performance suggesting that the region’s recovery remains vulnerable, a development that makes it more likely that the ECB will extend its already massive stimulus programme in December.
Euro zone’s final consumer price data scheduled today will come in sharp focus today amid deflationary risks that continues to threaten the wider Euro area economy. Although the preliminary estimate of consumer prices emerged out of negative territory in October, a surprise decline below the zero level could extend the losses in the Euro against its key peers today and might fuel further speculation over the ECB introducing more easing measures next month.
Other Currencies – Highlights
At the start of the week, the Kiwi Dollar is trading on a weaker footing against the greenback amid waning demand for higher-yielding currencies in the wake of renewed geopolitical risks. A number of factors have weighed on the New Zealand Dollar including a recent rout in commodities, but some positive news arrived during the weekend in the form of a strong retail sales report that sparked expectations of strengthening of the New Zealand economy in the third quarter with a major contribution from the broader services sector. Retail sales growth in the September quarter was boosted by gains in the motor vehicle industry and a pickup in consumer electronics that encouraged consumer spending. However, the Kiwi – US Dollar currency pair shrugged off the upbeat economic data release.
In the coming days, the highlight in New Zealand’s economic calendar will be the RBNZ’s quarterly survey of inflation expectations due tomorrow and producer prices scheduled later this week.