21/10/16 - Tough Tusk Ahead

GBP

Sterling fell yesterday after European Union President Donald Tusk,  who has previously taken a hardline stance towards the UK, said that there would be no pre-negotiations before Britain formally triggers its exit. Tusk said that he expected May to brief the other 27 leaders, and rejected suggestions that May would face a hostile reception, saying that the talks would remain cordial.

British retail sales recorded their strongest quarter of growth since late 2014. In the three months to September, retail sales volumes grew by 1.8 percent quarter on quarter, the strongest rate seen since the fourth quarter of 2014. The figure is also up from 1.1 percent in the three months to June.

Compared with a year earlier, third-quarter sales volumes were up 5.4 percent, again the strongest quarter since Q4 2014. Many economists are concerned that this could be the start of a longer-term trend of rising prices which will affect consumer demand.

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USD

U.S. home resales rose in September after two straight months of declines, as first-time buyers entered the market, suggesting further momentum in the economy.

Other data yesterday showed a larger-than-expected increase in the number of Americans filing for unemployment benefits last week, and the trend continues to suggest that the labour market remains strong. Labour market strength is one of the key factors underpinning the US housing market.

 

EUR

Yesterday, the ECB kept interest rates on hold, and once again reaffirmed it’s plans to maintain the current Quantitative Easing programme. This will remain at €80 billion to March 2017 or beyond if needed. President Mario Draghi mentioned that the next meeting on the 8th of December “will define the coming months”, and warned that the Eurozone is subject to “downside risks”. According to Mr Draghi, there has been no discussion about extending QE further, however “an abrupt end” to quantitative easing is “unlikely”. Draghi also said: “we remain committed to preserving a very substantial degree of monetary accommodation.”

Draghi noted that there is no “convincing upward trend” in underlying inflation. The ECB expects to reach it’s 2% target by early 2019.

 

Key Announcements

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