Despite being so close to Christmas, this week has been a busy one on the economic calendar, dominated by events in the UK. We started the week with CPI Inflation data which came in lower than expected at 1.0%, compared to a consensus of 1.2% and a previous figure of 1.3%. This number is actually the lowest in 10 years, largely fuelled by the drop in the price of oil. Tuesday also saw the publication of the Bank of England’s (BoE) stress test results on the major British banks. These showed that the Co-Operative Bank did not have the strength to survive another deep crisis, with Lloyds and RBS also remaining at risk.
Despite that doom and gloom, things took a turn back in a positive direction on Wednesday for the British unit, as an array of data showed a far rosier picture. Unemployment is down again, ahead of every other country in Europe and not far behind the US. More importantly, wage growth jumped to 1.4%, and combined with falling inflation, this means that workers are getting richer in real terms for the first time since 2008.
Wednesday evening saw the Fed meeting, where they again held rates. Chairwoman Janet Yellen gave some hints in her press conference that policy would not be adjusted for “at least a couple of meetings†and many analysts are now factoring in for a US rate rise in Q3 2015. The overall slightly hawkish tone strengthened the Dollar, with Cable reaching new 2014 lows before bouncing marginally higher again.
Thursday was retail sales day in the UK, which saw an astronomic 1.4% monthly increase, buoyed by Black Friday sales, and it was announced on Friday that UK government borrowing was down after the treasury received unexpected windfalls in bank fines. From the continent, we saw the German IFO survey suggest that the current situation in Germany is more positive than the 6-month outlook, undermining the single currency, and casting fresh doubt on the sustainability of the bloc.
Given that it’s the Christmas (and Boxing Day) Holiday next week there is a dearth economic data punctuated by bank holidays in the week ahead. As such rate action could be choppy and volatile. This is driven by thin volumes and presents those with needs that haven’t as of yet been covered a good opportunity to put market orders to use. Speak with you Cambridge Mercantile currency specialist to learn more.
Looking to the data calendar there aren’t any top tier Eurozone events next week and in fact only a single UK release worth paying attention to. Tuesday December 23rd sees the Q3 Current Account number announced, which measures the net of UK Imports and Exports. A positive reading denotes an excess of exports, while a negative reading or deficit indicates that imports outpaced exports. The Current Account Reading is important since it is a direct measurement of net real demand for deliverable Sterling. A result that moves more towards a surplus suggests that more foreign entities are buying GBP, which would be a positive for the unit. Meanwhile a result that shifts more deeply into deficit indicates less demand for Sterling. Expectations next week are for -£17.0B versus a Q2 reading of -£23.1B.
Please note that this will be the last edition of the UK Weekly for 2014. Happy Holidays and all the best for 2015 from the authors and all of Cambridge Mercantile Group.
In our latest podcast, we run down all aspects of the Fed decision, discuss the running down of oil, the run down Russian ruble and the weak currency down under:
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