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The Marketplace - November 10th 2014
10/11/2014
A quiet start to the week with a light economic calendar today and Veterans Day bank holiday in the US tomorrow.
The dollar was the biggest gainer for a second week in a row last week against both sterling and euro however the dollar's rally seems to have been curbed coming into the new week after disappointing Non-Farm payroll data on Friday.
GBP
Sterling closed considerably lower against the US Dollar last week, showing a second straight week of declines against the world’s reserve currency. Last week’s PMIs were mixed and there were no surprises from the Bank of England, which left QE and interest rate levels unchanged keeping the question open regarding which central bank should raise rates first.
The first data highlight of the week is on Wednesday when markets look to the release of the UK’s jobs data that is expected to offer more good news for the UK, with the unemployment rate seen falling to 5.9%, from 6% previously. This will be the first time it’s breached 6% since November 2008. Attention will remain on average earnings, with the Bank of England, like the Federal Reserve in the US, paying close attention to this as a key barometer of a real economic recovery and its implications of real wage growth. The Bank of England are looking to slack in the economy to disappear which should have the knock on effect of creating competition for places that should spur real wage growth. For many, this is the point that they see the BoE far more inclined to raise rates, providing the inflation environment permits.
The BoE releases its latest quarterly inflation report later on Wednesday which is becoming the release to watch for the week ahead. This is always accompanied by a press conference involving the Governor of the Bank of England, Mark Carney, and some other policy makers.
Euro
French manufacturing increased 0.6% for the month of September after August’s fall of -0.5%. Industrial production also showed no negativity for October after a revised September showing of 0.3%. For the third month in a row, France have shown growth in this sector but it doesn’t cover the cracks being exposed elsewhere.
The Eurozone economy is at risk of slipping into a self-fulfilling loss of growth momentum, European Central Bank Executive Board member Benoit Coeure said on Sunday, underlining the ECB's readiness to act if needed. Coeure pointed to the latest economic indicators and the European Commission's downward revision of its growth forecasts and called for "forceful and consistent action" on the monetary policy front, but also for fiscal and structural measures.
"Monetary policy cannot support growth in a long-lasting way. Only an adequate mix of reforms and investments can do it. And it is a matter of urgency," Coeure said in an interview. "The ECB is committed to taking additional measures if we face the prospect of inflation being too low for too long."
The ECB kept the door open for more action after its November policy meeting, saying it had tasked staff to prepare further measures, should it become clear that its current tools were not enough or if inflation expectation deteriorated.
USD
Last week saw the dollar advance against most major currency counterparts as data showed that the US economy is outperforming Europe and Japan. The dollar’s rally lagged slightly after the release of disappointing non-farm payroll data on Friday where payrolls were up only 214,000 compared with forecast of 231,000. The unemployment rate however dropped to a six-year low to 5.8 percent.
The market will be paying close attention this week to retail sales and consumer confidence releases. US retail sales were lower in the September, declining by 0.3 percent, compared with expectations of an increase of 0.2 percent. Projections this month are for a further drop of 0.2 percent. Core retail sales declined 0.2 percent for the first time since January, projections this month are for a gain of 0.2 percent as well.
US consumer sentiment will be one of this week’s major market movers as the released is expected to post an increase to 87.3, following on from October’s release which showed that sentiment was up to 86.4, the highest move in seven years.
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