Mark Carney testifies before the House of Lords Economic Committee
Today there are not one, but two key risk events. First up is the Bank of England (BoE) Governor, Mark Carney’s testimony before the House of Lords Economic Committee. The markets will primarily be scouting for hints related to further interest rate cuts. This testimony comes at an interesting time, as relations between the BoE and the government remain tense after the British Prime Minister criticised the central bank’s actions. Moreover, the crucial question will hover around the Governor’s self-imposed year-end deadline to decide whether or not to leave the BoE in 2018, or stay on until 2021.
After this, market attention will be diverted towards the European Central Bank (ECB) President, Mario Draghi’s speech, as he is likely to speak about economic stability and monetary policy at the German Institute for Economic Research in Berlin. Later today, US consumer confidence and the Richmond manufacturing data is up for release.
Pound Sterling – UK Markets
The Pound has trimmed some of its morning session losses against the US Dollar and the Euro this morning. Today, the BoE Governor, Mark Carney, is set to testify before the House of Lords Economic Committee. Questions predominantly related to Brexit and inflation are expected to be directed at the Governor. Apart from this, another lingering question will be related to Mark Carney’s future as the central bank Governor. His self-imposed year-end deadline to decide how long he will stay at the BoE is fast approaching, infusing another source of uncertainty into the already jittery markets.
Yesterday, the Confederation of British Industry (CBI) released its survey results for October. Data showed that British industrial orders surprisingly plunged during the month, with most manufacturers stating that Sterling’s fall since the referendum vote has had a negative net impact on business. On the other hand, the CBI business optimism index improved in October, as manufacturers expect new orders to increase over the next three months.
US Dollar – US Markets
The US Dollar is trading mixed against the Euro and the Pound this morning. Market participants will keep a close eye on US consumer confidence, IBD/TIPP economic optimism, Richmond Fed manufacturing index and housing price index data, all scheduled to be released later in the day. Moving forward, investors will also look out for the US gross domestic product and durable goods orders data, slated later in the week.
Yesterday, data indicated that activity in the US manufacturing sector surprisingly increased in October, driven by strong production and growth in new business. Separately, the St. Louis Fed President, James Bullard, stated that one interest rate rise by the Fed is all that was needed for the time being. Further, the Chicago Fed President, Charles Evans, indicated that the central bank is likely to raise the interest rate three more times by the end of next year.
Euro – European Markets
The shared currency is trading higher against its major peers this morning, after the release of upbeat data points from Germany - the Eurozone’s largest economy. Data released earlier in the session showed that a closely watched early indicator of current conditions and business expectations for the next six months released by the CESifo Group advanced above expectations in its October release. Additionally, the business climate indicator improved to its highest level since April 2014, as uncertainty over Britain’s vote to exit the European Union continues to abate. In other economic news, Italian industrial orders registered a robust rebound in August. Later on, the ECB President, Mario Draghi’s speech will be closely followed by market participants.
Yesterday, the German Bundesbank indicated in its monthly report that given the gradual increase in energy prices, the country’s inflation is likely to exceed 1.0% for the first time in over two years. Separately, the latest German PMI data recorded a strengthening in the nation’s manufacturing and service sectors.
Other Currencies – Highlights
The Canadian Dollar has corrected its previous session’s bullish trajectory and is trading lower against the greenback this morning. Yesterday, the domestic currency strengthened against the US Dollar after the Bank of Canada (BoC) Governor, Stephen Poloz, testified to the House of Commons in Ottawa that the central bank is adopting a wait-and-see approach in dealing with the country’s economy. He stated that “our best plan right now is to wait for the next 18 months or so.” This statement sent market participants into a tizzy as it was only less than a week ago that the Governor had revealed that the BoC “actively” considered adding stimulus to prop up a sluggish economy, after it held the key interest rate unchanged at 0.50%.
However, a few hours after his initial remarks, Stephen Poloz clarified that the “18-month” comment was not related to monetary policy, but was in reference to the nation’s output gap. Following this, the Canadian Dollar pulled back to negate some of its prior gains.