Focus remains on Trump, Can UK Retail sales impress?..
Week Commencing Monday 14th November 2016
UK: Construction sector enters recession
The UK’s construction industry has had its weakest performance in four years following the first three months after June's vote to leave the European Union, official figures from the ONS have shown.
Construction volumes fell by 1.1 percent in the third quarter as large falls in repairs were only partly offset by small rises in infrastructure and public building work.
The figures confirmed that British builders are experiencing a recession with a second successive quarter of decline after shrinking by 0.1 percent in the April-June period.
The actual release was better than market expectation, with analysts widely expecting a 1.4 percent decline. Britain's construction industry makes up about 6 percent of the economy.
TTIP: Dead in the water?
European policy makers appear to have conceded that the Transatlantic Trade and Investment Partnership (TTIP) is dead in the water.
Earlier this week, congressional leaders in both the Republican and Democratic parties said they would not bring the trade deal forward during a lame-duck session of Congress, before the formal transition of power on 20 January.
Originally, the 28-nation bloc hoped to seal TTIP with the Obama administration by the end of the year. But in the course of three years of negotiations, resistance has been mounting on both sides of the Atlantic, preventing a breakthrough in recent months.
Following his anti-globalisation stance, Trump has promised to get tough with China and withdraw from the unsigned 12-nation Trans-Pacific Partnership (TPP) as well as renegotiate or scrap the North American Free Trade Agreement (NAFTA) with Mexico and Canada. Interesting time ahead!
EUR/USD surged initially to 1.1298 last week but reversed and dived through 1.0850 support as markets count the perceived cost of a cancelled TTIP. Initial bias remains on the downside this week, especially as we see continued risk off trading surrounding Trumps electoral victory, with a potential low of 1.0517 in mind.
GBP/USD's choppy rebound from 1.1946 extended higher last week and touched a high of 1.2650, before returning to the mid point of 1.2450. Initial bias stays on the upside this week for further rises, given continued Trump rhetoric and GBP remaining a partial safe haven currency.
GBP/EUR also rose on the back of the Trump victory, pushing 1.1650 and retaining its bullish stance. With this in mind, and given we are unlikely to receive any Brexit related news in the coming week, we expect this bias to continue and the pair to trace higher.
Economic Calander for the Week
We have a busy week ahead for the UK with both the CPI and Inflation Report due on Tuesday, Employment on Wednesday and Retail Sales on Thursday. We expect inflation indexes to continue to rise as prices adjust to a weaker Sterling, which Mark Carney could provide some reignite Brexit talk during the Inflation report.
We expect the Claimant Count to increase slightly in October by a marginal 2.0k, while average earnings plus bonuses should come in at 2.4 percent. Retail sales is the big one, with the market expect a 0.5 percent gain in the lead up to Christmas versus last month’s flat reading. All in all, this could be a positive week or Sterling.
We have a big week for US markets with Retail Sales, Inflation, the Philly Fed and Yellen all potential market movers. We expect retail sales to come in a little lower than the previous, despite the festive season, at 0.4 percent and 0.5 percent respectively for core and non-core. PPI inflation should come in flat at 0.3 percent, while Core CPI should edge up by 0.1 percent.
Unfortunately we expect the Philly Fed to edge down to 8.0 given downside pressure to manufacturing confidence. Finally the market will look forward to any comments Janet Yellen might have regarding the President-Elect.
We have a quite week ahead for Europe with Mario Draghi and inflation the only economic releases of note. Currently a meeting of EU Foreign Ministers are scrambling to come up with a strategy in the Post-Trump world, and any hint of TTIP defeat will likely be market negative.
Inflation is the only economic release of note, and with expectations set at 0.5 percent, we expect little FX moves on the back of its release.