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The Marketplace - December 8th 2014

The US Dollar stole the headlines last week and made significant ground against its major counterparts. Climbing above a 7 year high against the Yen and with new lows for the Euro as Draghi’s speech last week gave no real optimism that the ECB were on track with the current QE program. Several key ECB members were critical saying they could not follow others (most notably Japan) as they were different regions with different economies. The UK delivered solid PMI numbers last week and held its own across the board but momentum seems to be with the US Dollar at the moment and that doesn’t look like changing as we approach the festive holidays here in the UK.

GBP

It is a relatively quiet week in the UK. However, industrial production (Tues), international trade (Wed) and construction output (Fri) will provide the first official  readings on economic activity in the  early part of  Q4. All are expected to confirm the firm tone noted in the PMIs recently and point to solid rises in activity,  suggesting that GDP growth in Q4 will be close to the 0.7% rise seen in Q3.

EUR

The second tranche of the ECB’s TLTRO programme (Thurs) is expected to be more widely taken up than September’s initial offering. The first operation totalled just €82.6bn, less than a quarter of the €400bn that the ECB had indicated was available over the two dates. The take-up is expected to be a lot higher this time. Investors expectation of €150bn. Whether this is enough to satisfy the ECB is unclear, but it will also be assessing the impact of its current purchases of covered bonds and ABS.

At his press conference following the ECB’s latest policy meeting, President Draghi stated they would review policy early next year once they had more indication of the impact of the measures announced so far. The indications are that he has more work to do to build a consensus on the Board for further action, in particular, for sovereign QE.

USD

In the US, November retail sales (Thurs) are likely to be seen as the data highlight of the week. Despite evidence that US economic growth is accelerating, retail sales have been relatively disappointing in the second half of the year. The signs are that this continued to be the case in November. Dealers’ reports suggest that car sales were up strongly, but initial indications suggest that “Black Friday” high street sales disappointed. As the retail sales series is not adjusted for inflation, it will also be held down by the fall in gasoline prices during the month. Analysts expect a solid monthly rise of 0.4%.

Otherwise the most interesting data for the week may be the October JOLTS measure of labour market turnover (Tues), a known favourite of Fed Chair Yellen. This is expected to show further labour market tightening. Politics could also impact on markets, as Congress must take action to extend the compromise on the debt ceiling by Thursday to avoid a government shutdown. They will probably do so, but the compromise may be short term until the new Congress meets early next year.   

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