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The Marketplace - 15th November

It’s a busy day for economics events with important data releases in both the UK and the US, along with testimony to a House of Commons Committee by BOE Governor Carney and colleagues. UK CPI inflation rose to 1.0% in September, its highest level since November 2014, while ‘core’ inflation also picked up. Analysts expect another rise in ‘headline’ inflation In October to 1.1%. When the BOE cut its policy rate in August, Governor Carney suggested that a further reduction was likely in November. However, not only did the MPC fail to cut rates at its November meeting, it also moved to a more neutral guidance on future policy. At today’s HoC Committee hearing, Carney and his colleagues may be asked about the extent of upside risks for inflation and what would needed to cause the MPC to tighten monetary policy. In the US, October retail sales are expected to post a sizeable rise of 0.6% led by buoyant car sales. There are also a number of Fed speakers including Fed Vice Chairman Fischer. Of particular interest will be anything he has to say about the sharp rise in Treasury yields over the past week.

Sterling Slips Slightly

Sterling dropped around 1 percent against the US dollar on Monday, as the USD followed U.S. bond yields and was higher across the board on expectations of a spike in inflation following Donald Trump's shock victory in the U.S. presidential election.

However Sterling has just recorded its best fortnightly performance on a trade-weighted basis in over eight years, with the spotlight having turned away from Brexit and towards the political risks elsewhere.

In Europe, Italy has a constitutional referendum next month, French and German national elections are also due in 2017. Not only that the fallout from Trump's election is also among the perceived risks going into the near future.
A Donald Trump victory was also seen by investors as potentially strengthening Britain's hand in Brexit negotiations with EU leaders, a view strategists said had boosted Sterling.

Trump's victory in last Tuesday's election has also rocketed the US dollar to its highest in 11 months as bond yields have spiked higher, with expectations that he would boost spending and put more restrictions on trade, moves seen as potentially ending the low inflation which has ruled the past decade.

ECB's Constancio Strikes a Cautious Note

Constancio  says the world economy faces an abnormal degree of uncertainty, warns against drawing hasty conclusions: “Many commentators have hasted in concluding that the recent geo-political developments will have, after all, economic benefits.

This may be the case in the short-term but the real negative effects of heightened uncertainty can come later…So far, those developments point to a U.S. rise in economic growth, but in the context of an ‘America first’ policy. Three factors may contribute to mitigate or even reverse its international spillovers.”

On the Euurozone, Constancio says “The euro area recovery is continuing its moderate but steady pace, supported by the ECB’s policies. These have significantly improved financial conditions, reduced financial fragmentation and fostered economic activity and inflation.”

Source: Reuters, CITI

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