Credit Agricole
Asia overnight
Most of the Asian stock markets as well as US and European stock market futures eked out modest gains, while commodities regained some composure overnight. The looming vote in the US House of Representatives later today on President Joe Biden’s mammoth Build Back Better economic plan may have reignited market optimism that was recently dampened by fears about the growth-negative impact from soaring global inflation. In turn, this has also helped US yields regain some ground and gave the USD a modest boost but mainly against low-yielders like the EUR, SEK and JPY. At the same time, commodity currencies like the NOK, CAD and AUD emerged as the best performing currencies so far today.
No Black Friday for the GBP
The GBP has recently benefited from a renewed build-up of BoE rate hike expectations on the back of better-than-expected labour market data and stronger than-expected CPI data for October. While we agree that the latest data may have increased the chances of a 15bp rate hike as soon as December, we doubt that the releases warrant the c.120bp worth of rate increases that the markets are expecting by the end of 2022. Indeed, we continue to think that the MPC will struggle to meet these hawkish expectations and therefore think that the GBP could remain vulnerable to a potential ‘dovish hike’ next month. Some downside risks linger as well.
First and foremost is the stagflation threat posed from the recent spike in cost-push inflation. Indeed, today’s retail sales print for October will be closely scrutinised for any evidence that the recent erosion of households’ real purchasing power weighed on domestic demand. In addition, many Brexit-related issues remain unresolved, and today’s meeting on the Northern Ireland protocol could highlight that the EU and the UK are still far from reaching a compromise. With many positives already in the price of the GBP, the currency could be vulnerable to any potential data disappointments or a renewed escalation of Brexit tensions today
Citi
European Open
USD eked out modest gains (+0.11%) through a quiet Asia trading session, as US stock futures climbed and Treasury yields edged up in response. G10 was a mixed bag with most pairs sat close to NY closing levels. JPY ticked slightly higher again as Japan government confirmed the record stimulus package, which kept Nikkei futures buoyant.
Looking ahead, we see Fedspeak from Waller (15:45 GMT) and Clarida (17:15 GMT). Both will be watched following Williams’ slightly hawkish comments yesterday. GBP sees a retail sales print at 07:00 GMT today, while we also watch out for headlines from BoE Chief Economist Huw Pill at 12:00 GMT. NOK will see a GDP print at 07:00 GMT that is not expected to move markets, while CAD will see a retail sales print at 13:30 GMT.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.