Markets sit poised for release of CPI data

Tom Tong17/Dec/2013Currency Updates

GBP

Sterling retraced gains against the greenback yesterday, punching back from 3-days of losses. Presently investors are priming positions in advance of a significant week for UK data that will tease the pounds ability to retain gains seen following the spectacular summer rally. However, the pound dipped against the euro after surprising data displayed that business activity was picking up in the eurozone.

Positive data yesterday will be a pleaser for UK workers and especially for those about to enter into the jobs market. Data by the CBI showed that the majority of UK employers expect to put up wages next year, a sentiment not seen since 2008. Furthermore, job prospects for graduates and apprentices are looking up as employers also expect to hire more fresh grads and apprentices next year.

Elsewhere in Westminster yesterday the showdown between bankers and politicians took a fresh turn. The House of Lords passed a banking bill with the intentions of preventing the scandalous behaviour that helped usher in the recession. Although in the very early stages the bill is a huge step to what now looks likely to be a definite legislative change. Put simply, the bill looks to ring fence banks retail and investment banking arms, a substrate of this would be a licensing regime for senior bankers and a new criminal offence- “criminal mismanagement of a banking institution”

Bundles of data out of the UK today should lead to a fairly eventful day- predominately inflation data with- CPI, PPI due for release. We also have core output and Retail Price Index.

EUR

Overall a strong day for the euro yesterday. Initial dips following poor data out of France. Accordingly gains shortly retraced and an ensuing rally following eurozone data showing business activity has unexpectedly picked up across the eurozone. The euro is also benefiting from the chatter over a possible FED taper sooner than originally expected. London closed with euro gains held across the board and the euro opens well supported this morning.

German manufacturing activity and the Flash eurozone PMI both beat forecasts yesterday which will be a boost for those in the market who felt a short term euro dip was likely. French private sector activity fell and the country is becoming a real worry for the ECB. France is the eurozone’s second largest economy, however it is increasingly being perceived as the weak link in the chain. The market will examine data on a microscopic level over the coming quarter. If the slips continue it could hold notable ramifications for the wider eurozone.

Data of note out of the eurozone today includes- CPI, ZEW survey and labour cost.

USD

Dull day for the dollar with dips across the board. Taper tantrums continue, whispers across the street allude to a possible FED taper this week. Strong NFP, increasing consumer confidence and productivity figures have sculpted an environment where the market now feels a taper may be up FED sleeves this week. Accordingly, US productivity data yesterday displayed its fastest growth in 4 years, lending strength to the wider view that the recovery has now taken solid roots in the economy. However, to provide perspective a taper remains the view of the minority, a Bloomberg survey of economists last week showed that only 34% feel a taper will occur this week with the majority feeling that Q1 next year is far more likely as markets will be better prepared with more data to digest and enhanced clarity over the true state of the US economy and growth prospects available.

On the flip side US stocks climbed yesterday bouncing back from their worst week in months as large deals boosted optimism. Equities are coming off their biggest dive in nearly 4 months a pullback that resulted from concerns that the FED many begin to scale back QE. Investors will remain cautious prior to the conclusion of the FED policy meeting.

Today will be the beginning of the FED policy setting meeting which will conclude on Wednesday, therefore eyes and ears will be focused on Capitol Hill.

Significant macro out of the US today includes- CPI, Redbook index, US current account figures and Bill auctions.

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Written by Tom Tong

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