Slow start to the week as investors digest central banker comments

Monday, December 07, 2015

An eventful week last week as investors were offered plenty of cues from central bankers with the US Fed offering further strong hints that it would look to raise rates at next week’s FOMC meeting. The ECB are sitting on the other end as Mario Draghi announced last week that the asset purchase programme would be extended for another six months to at least March 2017 while cutting the deposit rate by another 10 basis points to -0.3%. The Bank of England are sitting somewhere between the two as confidence in the UK economy continues to grow but some fragilities remain.

With the ECB embarking on additional stimulus, the US Fed looking to tighten monetary policy and the BOE currently erring on the side of caution, at times promoting a hawkish view and at others promoting a dovish view depending on the economic data due out that month, it will likely be a volatile end to the year as investors rush to position themselves ahead of any material shift in policy. The majority of economists polled by Bloomberg expect the Bank of England to maintain record low interest rates at least until the middle of next year. This ongoing vague policy outlook will likely see the pound sterling trade with significant volatility over the coming weeks and months as its struggles to find a place between  the dollar and the euro amid the diverging monetary policy outlooks for the US and the eurozone.

After a bumper week for economic data last week we’ll be getting off to a slow start this week with UK Halifax house prices and Japanese third quarter GDP data the only data points of note to look forward to today. German industrial production data for October has dampened the mood early on coming in at a seasonally adjusted 0.2% m/m, sharply below expectations of a 0.8% m/m increase but a marked improvement from the previous reading of -1.1% m/m. For the week ahead investors will have the overnight release of Chinese trade data to look forward to as well as Chinese inflation data due on Wednesday while UK investors will be eagerly awaiting industrial and manufacturing activity data tomorrow, the BoE rates decision on Thursday and the BoE inflation outlook for the next 12 months on Friday.

Sterling struggles to stem the outflow against USD during 2H of this year

GBP Curncy British Pound Spot 2015 12 07 08 14 01

Dollar back on the up after last weeks heavy sell off 

DXY Curncy DOLLAR INDEX SPOT 2015 12 07 08 14 29

Events for today

0700

DE

Oct

Industrial Production

0900

UK

Nov

Halifax House Prices

2350

JP

Q3

GDP

Topics: US Fed, ECB, BoE, DXY, GBP
More from: Kash Kamal