Thanksgiving gives way to a slow week...
Week Commencing Monday 23rd November 2015
Overriding Market Themes
We start this week in France, where growth of French services has slowed in the wake of the terrorist attacks in Paris. The flash reading for the dominant services sector fell to 51.3 in November versus 52.7 in October, which puts the print around the levels seen over the summer. This countered the somewhat more upbeat manufacturing activity index, which showed the private sector continues to expand. In fact, Private sector activity has increased for the 10th straight month, with the flash PMI for November coming in at 51.3 for the manufacturing and services sectors combined, down from 52.6 in October. France's slowdown came as growth in Germany's private sector accelerated; suggesting Europe's number one economy is defying global worries over an emerging markets slowdown and the corporate fallout from the Volkswagen scandal. Despite the French data therefore, there are glimmers of hope from the continent. The robust Germany, coupled with a more active and potentially printing ECB should bode well for the European economy in the medium term. That said, expect some continued EUR weakness in the coming weeks and months.
Over in the US, US Federal Reserve officials appear more confident that the economic conditions needed to trigger an interest rates rise are near. As we draw nearer to the December meeting, fed officials are quietly confident that the improving jobs market and rising inflation indicates that the economy is robust enough to support a minor rate hike. Earlier this year, many economists had thought that a rate rise might come in by October at the latest, however the volatility US markets and worries about economic growth in China put the hawks on the back burner. One thing worth noting is that speculation about an imminent interest rate rise usually unsettles financial markets. With this in mind, brace yourself! The greenback in on for an interesting ride!
GBP This Week
Wednesday’s autumn statement and the OBR forecasts are likely to be the key focus point this week. From a markets perspective, traders will likely focus on the pace of fiscal consolidation undertaken by the Treasury. We doubt that there will be any reduction in this scope, as George Osbourne appears to be relatively resolute on his plans. The issue this presents is that persistent austerity does have its impact on growth forecasts, so expect an aggressive fiscal consolidation policy to hurt Sterling in the short term.
The second release of Q3 GDP is also expected to hit markets on Friday, and we expect a 0.5 percent print (this is in line with market expectations). All in all, we have an interesting week ahead for the UK.
USD This Week
We expect the Dollar to trade rather lacklustre this week, especially given the Thanksgiving holiday on Thursday and the early close on Friday. Markets should continue to focus on the upcoming FOMC and ECB meeting next month, so expect the greenback to trade within its range this week. In terms of range, Sterling is maintaining its pressure around the 1.51 mark, and having been trading as far as 1.53 we expect some significant support at its current level. EUR/USD continues to take a pounding, with 1.06 certainly on the cards.
EUR This Week
There is very little data out from Europe this week, so expect most trading to be on sentiment surrounding either the ECB or FED. We are expecting some decline in German confidence on Tuesday owing to the emerging market slowdown, however we doubt it will impact German GDP enough to change the expected quarterly print of 0.3 percent.
EUR/USD remains pretty choppy on the back of the ECB announcement next month, especially given Draghi’s “whatever it takes” speech recently. If we see a further cut, potentially by 10bp to 0.05 percent, we expect to see EUR/USD push through parity for the first time since the Euro’s inception in 2000.