Daily Market Report - 17/12/2014

GBP
Yesterday’s figures showed plunging oil prices are starting to feed through to UK consumers’ pockets after inflation fell to just 1% for the first time in 12 years last month. 

Oil prices have fallen about 45 percent this year, pushing down energy costs across the world and helping to boost consumers’ spending power. While it also gives the Bank of England scope to keep interest rates at a record low, Governor Mark Carney said today there are potential financial-stability risks associated with a continued drop.

The figures fuelled expectations that policy makers are at least a year away from raising interest rates
Inflation is now on the brink of straying more than a percentage point from the Bank of England’s 2 percent target, which would require Carney to write a letter of explanation to Chancellor of the Exchequer George Osborne. 

In its Financial Stability Report today, the BOE noted the drop in the oil price could undermine stability if it prevents companies such as exploration firms from servicing debts or if the decline jeopardizes inflation expectations. 

EUR
Germany’s benchmark investor sentiment survey surged to a multi-month high, the ZEW Institute said Tuesday, adding further evidence that Europe's biggest economy may have climbed out of its third quarter trough The figure is the highest level since May at 34.9 and far above the median estimate of  18.0

One of Germany’s largest banks has also suggested that the unexpected drop in oil prices could add up to 0.2 percentage points to GDP in  its latest forecast for Germany, which anticipates growth of 1.0 in 2015.

Key Announcements:
GBP – 09:00: BOE’s MPC vote expected to stay unchanged at 7-2 
GBP – 09:30: UK ILO unemployment rate (Oct) expected to be lower at 5.9% from 6.0% 
EUR – 10:00: Eurozone Inflation (Nov) expected to be lower at 0.3% from 0.4%
USD – 13:30: US inflation ( Nov) expected to be lower at -0.1% 
USD – 19:00: US Federal Reserve interest rate decision expected to be unchanged at 0.25% 

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