UK PMIs and ECB meeting in focus this week
In a start to a new week, the just released data showed that UK net consumer credit continued to grow and mortgage approvals for house purchases edged up though slightly below estimates for October. The strength of the UK economy could be in greater focus in the coming days, as investors brace themselves for a raft of data such as the UK manufacturing PMI survey, services PMI, construction data and house prices report for November.
Across the Atlantic, Chicago PMI, manufacturing activity data in the Dallas region and pending home sales are due for release later today. Earlier today, German retailers were reported to have had a disappointing start to the important Christmas-shopping season. Investor focus is on the European Central Bank (ECB) rate decision this week.
Pound Sterling – UK Markets
Ahead of the weekend, sentiment for the Pound had weakened against the majors following the release of the second estimate of the UK GDP report which confirmed that economic growth slowed in the third quarter. Also, the revelation that UK’s growth was dampened as nation’s trade deficit or the gap doubled in the third quarter as a jump in imports put the spotlight on Britain’s unbalanced recovery and led to further losses in the Pound against its key peers.
Sterling hardly moved against the US Dollar this morning after the official mortgage approvals data showed a slight improvement for October albeit less than market estimates. The figures suggest good recovery in Britain’s housing market which had fallen last year due to tighter mortgage lending rules. Additionally, consumer credit growth for October was the highest since 2006. In the coming days, trading in the Pound against the majors could hopefully be impacted by the release of a string of activity growth data, starting with manufacturing tomorrow which on a strong showing could induce the BoE to reconsider its policy stance.
US Dollar – US Markets
The US Dollar has edged higher against the Euro in the start of a new week, as divergent monetary policy outlooks between the Fed and the ECB gets more pronounced in the run up to the latter’s policy decision meeting on Thursday. Also, volatility in trading between the US Dollar and other major currencies could pick up along with economic news this week, while another US payrolls report due by the end of the week could raise expectations in favour of an increase in interest rates by the US Federal Reserve next month. Also, Fed Chairperson Janet Yellen’s comments throughout this week will be carefully scrutinised for a final set of cues ahead of the December monetary policy meeting.
Keeping an eye on today’s US economic data releases such as pending home sales and regional manufacturing activity indices, investors will make note of these fresh insights to gauge the health of the economy. A modest rebound is anticipated in today’s pending home sales data and numbers from the Dallas and Chicago region could continue to show sluggish growth in the nation’s battered manufacturing sector.
Euro – European Markets
The Euro has started the trading day on a weaker note against its major currency counterparts, as the final ECB monetary policy meeting of the year approaches. Expectations are rife for the central bank to expand its already aggressive monetary policy stimulus programme to fight against persistent lower inflationary pressures in the Euro zone, a move that could keep the shared currency under pressure across the board in the coming days.
Adding to negative sentiment, German retail sales data for October released earlier today showed that the pace of spending unexpectedly dipped lower and matched August decline. The softer trend in consumer sentiment was also reflected in last week’s survey by the GfK which indicated that morale among German consumers weakened for the fourth straight month in December. The German preliminary consumer price inflation data scheduled later today could paint a more pessimistic impression on consumers as the price pressures are estimated to modestly rise for November, making goods expensive for them.
Other Currencies – Highlights
The Japanese Yen is currently trading lower against the US Dollar, with markets digesting latest remarks by the Bank of Japan (BoJ) Governor Haruhiko Kuroda’s speech earlier today. The Governor reiterated the need to push up prices and take necessary steps to reach the central bank’s desired consumer price inflation goal. According to Japanese economic data released in the previous week, consumer prices continued to slide largely due to the impact of falling energy prices. Also, Japan slipped back into recession in the third quarter as slow wage growth and weakness in exports and output hurt the economy.
However, a modest expansion in Japanese industrial production and an uptick in the nation’s retail sales for October according to data published earlier today reflect improving economic fundamentals at the start of the third quarter. Despite these economic data releases showing some initial signs of a moderate recovery in Japan, it is unlikely to have an impact on the BoJ Governor’s views to ramp up its already massive stimulus programme.