ECB Chief Signals More Stimulus if Needed
The ECB President earlier today cautioned that signs of core price inflation recovering in a sustainable manner has somewhat weakened, thus clearly indicating that its asset purchase programme would run past end-September 2016.
Meanwhile, in the UK, a RICS survey earlier today revealed that a significant shortage of properties continued to push Britain’s house prices upwards in October. In the absence of any additional UK macroeconomic indicators in the session ahead, all eyes will be on Fed Chief Janet Yellen’s speech later today and any further indications of a December Fed interest rate rise could trigger volatility in trading in the Pound – US Dollar currency pair. Also, two US economic updates related to the US jobs market could attract some market attention.
Pound Sterling – UK Markets
The number of residential properties coming into the UK housing market has dropped for the ninth straight month in October, pushing up home prices for sale. The Royal Institution of Chartered Surveyors (RICS) earlier today provided the latest barometer of the UK housing market, in which it stated that house price growth accelerated for October as demand for both the sales and letting markets outstripped supply. A survey by Mortgage lender Halfix in the previous week had also pointed out the renewed pressure on house prices this year. The imbalance between buyer demand and the number of homes for sale are likely to create price pressures in the nation. However, the Pound hardly budged against the major currencies following the release of this data.
Yesterday, UK’s latest jobs report is likely to have strengthened the view that the appropriate time for the BoE to raise its policy rate is fast approaching. Official figures which hinted at a lack of slack in the labour market and falling unemployment rate could stoke up underlying inflationary pressures in the near term.
US Dollar – US Markets
The US Dollar is trading on a stronger footing against the Pound this morning, while investors stay on the sidelines in a subdued trade, awaiting the latest remarks by Yellen for further clarity on timing of the first interest rate rise. Meanwhile, the likelihood of a December rate rise has increased in the wake of a robust employment report and as fears of overseas factors threatening growth in the US has somewhat subsided.
In addition, new filings for unemployment benefits and JOLTS job opening numbers, scheduled later today, will provide further insights on the state of the US labour market in the wake of previous week’s strong gains for nonfarm payrolls in October. Market expectations for the first new round of hard data on the labour market today is expected to show claims slightly dipping for the last week. The level of initial claims for first time jobless benefits is anticipated to hover close to multi-decade lows, signalling stronger growth ahead. The JOLTS update on job openings is expected to hold steady for September after posting a sharp slide in August.
Euro – European Markets
The Euro had slumped against the US Dollar this morning after the ECB President Mario Draghi reiterated that the central bank’s monetary policy stance would be reassessed at its December meeting as he stressed that the downside risks stemming from concerns surrounding global growth and trade weighed on the domestic currency and nominal wage growth. The remarks also highlighted that there would be further easing of price pressures in the region and that the possibility of a sustained course of recovery in core price inflation has weakened.
On the macroeconomic front, the final German consumer prices data released earlier in the day confirmed that inflationary pressures slightly picked up in October but still remained well below the ECB’s desired target, fuelling expectations for further monetary stimulus. Moving ahead, Euro zone’s September industrial production data is scheduled for release in a while and is projected to be on the weak side. However, a survey data had recently suggested that the current profile for industrial activity in Europe appears to be pointing towards a mildly stronger run of growth.
Other Currencies – Highlights
The Aussie Dollar rallied against the greenback earlier today, encouraged by strong job numbers in Australia, although prospects of a December Fed rate rise in the US kept gains in check in the currency pair. Official figures earlier in the day revealed that hiring in Australia’s labour market jumped well above expectations for October, thus putting the nation on course for its best year of jobs growth since 2010. The improvement was also seen in the jobless rate for October which unexpectedly ticked down to its lowest level in five months. The robust employment report backs RBA’s view that the Australian economy’s prospects have improved. Also, expectations of an imminent rate cut by the RBA are expected to have greatly diminished today. Meanwhile, there was also some chatter in the market that the headline job gains were overstated, particularly since the RBA officials had made some changes last year to the way bureau adjusts its figures for seasonal factors.
Looking ahead, market participants will gradually shift their focus to a speech to be presented by Fed Chairperson later today for more confirming cues about a December rate rise.