BoE and ECB Policy Meetings in Focus
UK manufacturing and industrial production data for September have broadly surpassed market expectations, but Sterling has shown little reaction against the majors. Market focus in the session ahead will be on the policy meetings of the BoE and the ECB where both central bankers are expected to keep their policy stance unchanged. However, a large disparity in expectations continues to build up due to contrasting macro trends in the UK and the Euro zone. The weak economic health of the Euro bloc continues to strengthen prospects of further stimulus, while Sterling investors continue to look for hints on the timing of an interest rate rise.
Across the Atlantic, investors will eye today’s initial jobless claims data, especially considering yesterday’s encouraging ADP employment report.
Pound Sterling – UK Markets
Data just out has shown that the pace of manufacturing production growth in the UK slowed for September, although the numbers beat market expectations. Considering an unexpected drop in UK manufacturing PMI reading for September, today’s data has highlighted that the performance of the manufacturing sector remained sub-par during the end of the third quarter.
Going forward today, the BoE’s policy meeting is likely to attract significant market attention as the central bank is expected to keep its monetary policy stance unaltered. The dovish tone of most central bank officials along with the NIESR quarterly report released yesterday continued to indicate that the BoE plans to keep its key interest rate unchanged for a prolonged period. Market participants will keep a tab on the BoE’s quarterly inflation report next week, especially amid signs of weakness in domestic inflation and fragile economic conditions in Europe. Later today, the NIESR will report Britain’s GDP estimate for three months ended October and will gain considerable market attention.
US Dollar – US Markets
The greenback gained ground against the Euro in yesterday’s trading session. The ISM non-manufacturing PMI report released yesterday revealed that the pace of services sector activity growth in the US slowed more than expected for October. However, this caused little discomfort to investors as yesterday’s ADP survey in the US showed that the pace of private sector job additions remained robust for October. This was a fifth straight month where the number of job additions were more than 200K.
In the session ahead, market participants will keep a tab on initial jobless claims data in the US for further direction which is expected to show that the number of first time jobless claimants remained below the 300K mark for an eight straight week. Additionally, speeches from a few US Fed officials later today will attract attention, especially after the Fed’s recent post-meeting policy statement revealed a shift in the central bank’s policy stance to a more hawkish flank.
Euro – European Markets
German factory orders data released earlier today showed a less than expected rebound for September and offered another evidence to investors that macro performance in Europe’s largest economy is deteriorating. Today’s data has limited the upside in the Euro which had moved above the 1.25 mark against the US Dollar earlier today. Considering that macro data in the Euro zone has not been encouraging lately, market participants will keenly await the outcome of the ECB’s policy meeting scheduled later in the day. The post-meeting policy statement will be eyed by investors to gauge whether the central bank joins the Bank of Japan in its bandwagon to add more stimulus. However, prospects of the ECB adopting a wait and watch approach cannot be ruled out, especially after reports released earlier this week indicated that the national central bankers plan to challenge the ECB President, Mario Draghi, over his management style.
In yesterday’s trading session, the Euro slipped below the 1.25 mark against the greenback. Data showed that the annual retail sales growth in the Euro zone slowed more than expected for September.
Other Currencies – Highlights
The Japanese Yen lost ground against the greenback and touched a multi-year low after the minutes of the Bank of Japan’s latest policy meeting released overnight raised concerns about weak inflation in Japan. The minutes showed that the decision of the central bank officials to increase stimulus in Japan was primarily to safeguard inflation from the recent drop in global energy prices and subdued domestic demand. However, with the decision to add further stimulus being non-unanimous, market participants speculate that it might lead to divisions on the central bank’s board and hamper future policy decisions. However, policymakers remained confident that the Japanese economy would continue to recover at a moderate pace.
With little on the domestic macroeconomic front, traders will keep a tab on policy meetings in the UK and the Euro zone scheduled later today. Additionally, tomorrow’s US official labour market report will prove crucial for providing further direction to the US Dollar-Japanese Yen pair.