Sterling under pressure as Manufacturing tanks!..
Week Commencing Monday 7th December 2015
Overriding Market Themes
November’s black Friday event did little to boost UK retail sales, we like for like sales in November fell by 0.4 percent. The news was a huge disappointment for the market, which until then had been reasonably bullish on the UK economy for the short term. That said, short term factors influencing the figures include the unseasonable mild temperatures for the month, which hit sales of cold-weather clothing. But it is established, longer-term market shifts that continue to be the main driver of trends. Diving into the figures, online sales were definitely the winner, where non-food products in the UK were up 11.8 percent versus a year earlier, when they had grown 12 percent. Total food sales grew 0.1 percent over the three months to November and 0.3 percent over the twelve months, but declined for the month. All in all, we have seen a disappointing end to the year for the UK, let us hope that the UK can rediscover its mojo for the year ahead!
GBP This Week
We expect the Bank of England to keep policy unchanged at its December meeting on Thursday. We believe the tone of the minutes is likely to remain broadly the same as that of the November MPC meeting, highlighting the inherent uncertainty among Committee members. Indeed, muted inflation pressures are likely to further push back interest rate expectations to mid-2016 at the earliest.
On the data side, manufacturing production has already come out considerably lower than expected, at -0.4 percent versus a market expectation of -0.1 percent. Sterling continues to be under pressure, especially versus the greenback. GBP/EUR continues to whip around the 1.38 – 1.40 mark, however we still believe risk on this pair is to the upside.
USD This Week
We would not expect a huge market reaction from US data this week, with Retail sales and Michigan consumer confidence probably the highlights. We expect both releases to confirm the positive momentum of the US consumer and should confirm to the FOMC that it is time to lift off. We expect Core Retail sales to increase 0.5 percent on the month, in line with consensus and the Michigan survey to print a 90.5, which is a narrow miss versus expectations.
EUR This Week
On the data front, we expect a technical rebound in German Industrial Production on Monday after two consecutive declines, especially since the IFO survey for October pointed to some increase in output. Also, we look for French Industrial Production on Thursday to remain flat for October while we expect the euro area Q3 final GDP estimate on Tuesday to be confirmed at 0.3 percent on the quarter, softening from the 0.4 percent print in Q2.