Articles from December 2016



Bank of England policy meeting and US inflation take focus

Yesterday the main focus was on the Bank of Englandís policy meeting and US inflation data.

Yesterday the main focus was on the Bank of Englandís policy meeting and US inflation data.

They were both non-events, as the BoE kept policy measures unchanged, although the statement that followed focused on the recent appreciation in Sterling, as it is expected to limit the inflationary pressure relative to the target in the medium term. Over in the US, headline CPI was in line with market consensus at +0.2%.

Staying in the US, despite the recent strength of the dollar, the latest manufacturing indicators were positive, as the Philadelphia Fed Manufacturing Index for December printed much higher at 21.5, against a consensus of 9.1 expected. The Empire manufacturing reading came in at 9.0 against 4.0 expected. The flash manufacturing PMI also printed at 54.2, up from the 54.1 reading last month. The job market is also in good health, as Initial Jobless Claims declined to 254k last week.

European data releases

In Europe, December flash PMI’s were out, and the composite reading for the Euro area came in unchanged at 53.9 for the month. The single currency extended its losses, falling to 14 year low against the US dollar, as the prospect of more tightening by the Fed is keeping demand for the greenback high. In Germany, the manufacturing PMI report came in stronger than expected at 55.5.

Wise Money marlet’s data to come

The day ahead will see investors turning their attention to the CBIís December industrial trends survey, which is scheduled at 11am and will be closely looked at, as it will provide a timely health check on the UK economy as we head towards the end of an eventful year. The consensus is to show a decline of -5% of firms, which reported a rise in orders in December. Markets will also receive the final November CPI revisions in Europe and trade data. In the US, November Housing Starts and Building Permits data will be released.

Bullish Fed raises rates to send dollar soaring

In keeping with market expectation, the US Federal Reserve has increased interest rates by 0.25% buoying up the Greenback.

In keeping with market expectation, the US Federal Reserve has increased interest rates by 0.25% buoying up the Greenback.

Fed Chair Janet Yellen has finally shown some optimism on the US economy by signalling that the Federal Reserve will increase rates 3 times next year and that the US economy does not need to rely any more on fiscal stimulus to prop up the labour market. Full employment is on the verge of being achieved and the decision has been taken to increase interest rates despite the uncertainty of President elect Donald Trumpís initiation in office.

While offering a bullish view on the Fedís dot plot for subsequent years, a 0.25% hike is more of a wait and see approach taken by the Central Bank. As most of the move was priced in, the equity markets dropped slightly while the US dollar made gains against most of its counterparts. Today, investors will turn their attentions to US inflation, manufacturing and labour data as well as Eurozone manufacturing PMI numbers for further direction on the markets.

Spotlight on the Bank of England

With Sterling having lost its gains made in the lead up to the Fedís interest rate decision, markets will be keenly focused on the Bank of England interest rate decision and meeting minutes which are due for release later today. With uncertainty still prevailing on the nitty-gritty of Brexit, it is widely expected that the Bank of England will maintain their neutral stance and keep interest rates where they are until some certainty and direction comes back into the market.

While reports show that the economy is still resilient after the Referendum, concerns are growing on slowing growth forecasts for next year as well as mounting inflation which could put pressure on consumer spending. The Government also took a stance and announced that it may lean towards a transitional deal if necessary for the UK, therefore leaving the EU to pander to the financial sector in trying to achieve a smooth transition. However, markets will be closely watching statement that come out of the Bank of Englandís interest rate decision for further direction.

ECB Quantitative easing programme to be extended until end of 2017

The European Central Bank has announced yesterday its commitment to extend its quantitative easing programme to the end of 2017 and longer if needed.

The European Central Bank has announced yesterday its commitment to extend its quantitative easing programme to the end of 2017 and longer if needed.

Indeed, its governing council decided to extend by nine months its asset purchase scheme, which consists in buying assets from banks with newly created money. However, to try and help drive inflation and growth back up, the ECB will reduce the size of monthly bond purchases by $20bn to Ä60bn; a move that confounded the markets.

Draghi admitted that the decision had a ìvery, very broadî support and implied that he couldnít get unanimous backing for the plan with Jens Weidemann from the Bundesbank likely to have opposed such move. Despite such move being greeted as tapering of the unconventional QE programme, Draghi was adamant to negate this; he left some City experts a little confused as he stated ìThe natural way to look at a word like that is to have a policy whereby purchasers would gradually go to zero, and thatís not been discussed or, as a matter of fact, itís not even been on the tableî.

The euro weakens against the US dollar and Sterling

As a result, the single currency weakened against the US dollar and the pound as markets digested an unexpectedly dovish outlook on monetary policy hinting that QE could go on for much longer if required. This provided a welcome boost to European stock markets as investors cheered the ECB decision to remain in ìeasing modeî, with the promise of more cheap money certainly putting trading floors in a Christmas mood. During his press conference Mario Draghi also warned against complacency over the impact that Brexit vote and Donald Trumpís election win will have on the Eurozone and the financial markets.

Data released yesterday and data to come

The ECB was the overwhelmingly dominating theme in markets yesterday. In the US, Initial Jobless Claims were reported as being down to 258k. In Europe, the only data worth of note came from France where the Bank of France business sentiment reading for November improved.

Looking at today, the calendar is light as we head towards the weekend. This morning, in Germany, we’ll get the October trade report, and in France, we will receive October industrial production; in the UK, weíre expecting the trade data. This afternoon, in the US, final revisions to the October wholesale inventories report and preliminary University of Michigan consumer sentiment survey are scheduled for release.

 

Carney- UK annual debt is spinning out of control

Mark Carney, Bank of England Governor, has issued a warning to all UK households that the annual debt may be spinning out of control.

 Mark Carney, Bank of England Governor, has issued a warning to all UK households that the annual debt may be spinning out of control.

Credit cards and other forms of unsecured debt are at their highest level for a number of years, as consumers carried on using false money for purchases. After releasing Stress Test results, he pointed out that Q2 for 2016 has shown an increase as high as 133% per household, and he was keen to see a more logical approach from consumers to spend their capital wisely.

Failed stress test and increasing car prices

In other news, The Royal Bank of Scotland failed the Bank of Englandís stress tests yesterday, plummeting share prices for the already poorly performing Bank. The PRA, who govern major Banks and companies, will now be watchful of future moves by RBS, who now have to boost their balance sheets by reducing costs (potentially jobs) and cut any assets which continue in the red.

Car prices could be set to increase, as the President of the SMT has suggested that the price will rocket if access to the Single EU Market is not kept. Tariffs and import prices could rise to unprecedented levels which could be passed onto consumers, almost a given. With nearly 80% of British car being exported, companies would be keen to pass costs onto buyers rather than cut costs, such as jobs and factory downsizing.

Oil price rises as the production is cut

The Organization of the Petroleum Exporting Countries have agreed to cut the production of oil for the first time in 8 years, sending the price of oil through the roof, moving up 8.6%. The production will be cut from currently 1.2million barrels per day down to a figure of 32.5m barrels per day, making the cost a at the close of play $50.36 a barrel. Non-OPEC members will meet on the 9th December, and if they agree to their word on their respective cuts, the price could increase further.

Wise money market’s data to come

Todayís data from the UK solely relies on Nationwide House Prices, with the Eurozone hosting a number of manufacturing figures with the Unemployment rate to boot. The US also has a busy day after a superb end of a trading day for the S&P Index, with ISM manufacturing out to view alongside Initial Jobless Claims, plus a number of key note speakers commenting this afternoon.