Daily Market Report - 03/12/2015

The annual rate of inflation in the Eurozone rose just 0.1% in November, this was below the forecast reading of 0.2% and was unchanged from the previous month. The Euro immediately fell to a low for the day after the reading was published, and was down 0.4 per cent against the dollar, near a eight month low. Core inflation rose 0.9%, falling from a 1.1% reading in October, indicating that inflationary pressures are weakening. The weak data added to the view that the ECB could announce fresh measures to support price growth in its meeting today and added pressure to step up stimulus measures. 

The U.S released some strong employment data yesterday which has increased the chances that the Federal Reserve will raise interest rates in two weeks time. A total of 217,000 new jobs were created by US companies last month. This is the biggest rise in private sector payrolls since June, and beats forecasts for a 190,000 increase. It also beat October’s reading of 196,000, which was revised up from 182,000. Newly revised government figures show that productivity rose at a 2.2% annual rate instead of 1.6% in the third quarter of the year and unit-labor costs were also revised higher to show a 1.8% annual increase.

In yesterday’s speech Yellen said she was "looking forward" to a U.S. interest rate hike that will be seen as a testament to the economy's recovery from recession. She added that holding rates at zero for far too long could pose a risk to financial stability. A currency strategist in New York said that ‘Overall, Yellen gave a fairly positive assessment of the economy that would be consistent with the Fed raising rates at their December meeting’.

We saw the pound weaken after market research firm Markit and the Chartered Institute of Purchasing & Supply said that their U.K. construction PMI declined to a seven-month low of 55.3 last month from a reading of 58.8 in October. It was expected to fall to 58.2 in November. It signalled the slowest expansion of business activity for seven months. This saw sterling fall almost a third of a percent against the dollar and added to a sense that the British economy is struggling to deliver the sort of sustained demand pressure that may prompt the Bank of England to raise interest rates.

British 10-year government bond yields also slipped half a basis point after the construction PMI, bottoming out at 1.754 percent, the lowest level since Oct. 15. Money markets have pushed expectations for a first rise in UK interest rates far into next year, although there are still some major banks that believe the bank will follow the U.S. Federal Reserve's lead in tightening policy within a few months.

Key Announcements
EUR - 09:00: Markit Services PMI (Nov) – Expected to stay the same at 54.6.
EUR - 12:45: ECB Interest Rate Decision
EUR -13:30:  ECM Monetary Policy statement and press conference
USD - 14:45 : Markit PMI Composite (Nov) Previous reading 56.1
USD - 14:45 : Markit Services PMI (Nov) Previous reading 56.5
USD - 15:00: Janet Yellen Testifies