Daily Market Report 21/11/2013

GBP

The Bank of England unanimously voted to keep the benchmark interest rate at 0.5% and the quantitative easing programme at £375bn in its latest minute’s yesterday morning. Policy makers did however comment that even if the unemployment rate falls to the 7% threshold, the BoE may still need to keep the benchmark rate at 0.5%, in order to ensure the recovery was sustainable.

The pound dropped immediately following the announcement but soon recovered as investors realised that the comments weren’t too dissimilar from previous ones with regards to an interest rate hike.

EUR

In a week that looked so promising for the euro with positive data expected throughout the week; fortunes for the euro has somewhat changed. According to sources the ECB are considering a negative rate of interest in order encourage banks to lend to one another and thus stimulate the economy.

The euro weakened by 1% against the pound and the US dollar and as long as data continues to disappoint in the Eurozone, then we could well the euro weaken further.

USD

The US experienced mixed data yesterday afternoon. The rate of inflation fell in line with forecasts to 1% but retail sales beat forecasts rising to 0.4% in October from 0% in September.

The main event however was the release of the minutes from the Federal Reserve’s latest monetary policy meeting. The outcome was a bit of a surprise with policy makers announcing that tapering of its US$85bn monthly bond buying programme may occur in the coming months – as long as the economy continues to improve as anticipated. This would mean that tapering could occur earlier that recent forecasts of March 2014.

The US dollar strengthened off the back of the news to the tune of 0.3% against the pound and 0.37% against the euro.

Today

Data from the Eurozone has disappointed with both the manufacturing and service sectors falling shy of expectations and showing that growth slowed in November. Mario Draghi is due to speak this morning and no doubt will be questioned on the possibility of negative interest rates.

UK data this morning has showed that the deficit for the UK’s public sector borrowing costs haven’t reduced as much as expected, with the deficit only falling to £6.383bn instead of £4.000bn. The pound has weakened off as a result.

Given the outcome of last nights Fed meeting, movements on the US dollar will be even more sensitive to economic data. Today job data is set to reveal that the number of people filing for jobless claims fell for the week ending 15th November, adding to signs that the US job market is improving. Mixed data is expected with regards to manufacturing with data agency Markit revising an expansion of the sector whilst the Fed Bank of Philadelphia forecasting a lower print for November.

Key Announcements:

10.05am – EUR – ECB President Draghi’s Speech.

13.30pm – USD – Initial Jobless Claims (Nov 15): Expected to fall to 335,000.

13.58pm – USD – Markit Manufacturing PMI (Nov): Expected to increase to 52.4.

14.30pm – EUR – Consumer Confidence (Nov): Expected to improve to -14.

15.00pm – USD – Philadelphia Fed Manufacturing Survey (Nov): Expected to fall to 15.5.