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The main talking point from last week was the fact that inflation held steady in October at 3%. Analysts had expected the figure to increase to 3.1% and this raised questions over whether the Bank of England had hiked UK interest rates too early. Then came the news that wage growth grew by just 2.2% per year in the third quarter of 2017, which served as further evidence that UK households are feeling the pinch – a point backed up by the release of the year-on-year retail sales figures. They declined by 0.3% and, while that was better than the 0.6% drop many economists had predicted, it was still the first annual drop since March 2013.
Meanwhile, eurozone inflation came in at 1.4% for October (when 1.5% had been expected), and US industrial output jumped up from 0.4% in September to 0.9% in October. Regarding currency pairings, the pound has been pretty volatile against the US dollar the past couple of weeks, weakening one day and strengthening another, but, ultimately, it appears to be headed where it was before the sharp drop we saw after the UK interest rate decision earlier this month.
Against the euro it is a different matter and quite a curious one. If we look at the day of the rate hike and compare it with the back-end of last week, sterling has pretty much moved sideways. It is currently in a position of limbo and there is simply no way of knowing which direction it take in the near future.
The main releases this week are Wednesday’s eurozone consumer confidence and the Federal Open Market Committee meeting minutes, and Thursday’s UK consumer confidence and German manufacturing purchasing managers’ index.
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GBP: GDP growth set for release on Thursday
It was an odd week for UK economic data to be honest, where negatives weren’t quite as grey as they could have been and positives didn’t shine all that brightly. Wage growth grew, but only by 2.2% (far behind inflation), while on an annual basis, UK retail sales declined by 0.3% against an expectation of -0.6%. The pound strengthened against the dollar and moved sideways against the euro.
This week is a fairly busy one for UK economic data, although there is nothing of note today. Tomorrow we will see the public sector net borrowing and CBI industrial trends orders, while the BoE Financial Policy Committee are scheduled to meet on Wednesday. Thursday sees the release of Gross Domestic Product growth and on Friday we’ll get the mortgage approvals.
The chart below shows sterling’s performance against the US dollar over the last month. As you can see, after the pound fell off a cliff following the Bank of England’s recent interest rate rise, it is slowly headed back to where it was before. It really does show how volatile currency pairings can be in a short space of time.
EUR: Draghi suggests that ECB stimulus will continue for some time
The main news from the eurozone last week was that inflation dropped 0.1% to 1.4%. European Central Bank President Mario Draghi spoke at the European Banking Congress in Frankfurt on Friday and said that the eurozone was not yet at the point where inflation can be self-sustained.
In addition, he added that despite solid growth and rising employment, inflation would not be able to pick up of its own accord. Rather, stimulus from the central bank is still required. In truth, this largely echoed what he said when the ECB announced it would withdraw some stimulus, but was committed to buying €30 billion of bonds from January 2018 through to at least September 2018. Ultimately, we learned that Draghi and the ECB will continue supporting the eurozone’s economy for some time yet.
It is a fairly quiet start to the week for economic data in the eurozone, but on Wednesday we will see the consumer confidence flash figures. On Thursday, Markit will release their manufacturing PMI flash report for Germany and manufacturing, composite and services PMI for the eurozone. Then, on Friday, we will see the IFO business climate for November.
USD: Yellen due to give a speech on Tuesday
The UK and eurozone took centre stage for most of the week as it was pretty quiet for US economic data. However, on Friday we learned that building permits and housing starts came in higher than expected. Indeed, US homebuilding hit a one-year high in October, at least in part because of the need to replace homes following the hurricanes and flooding of recent months.
This week is a much busier affair, beginning with existing home sales numbers on Tuesday. Federal Reserve Chair Janet Yellen is due to give a speech the same day, which will be watched closely for any indications of future monetary policy. On Wednesday, we will see the durable goods orders and jobless claims numbers, as well as the FOMC meeting minutes.
Finally, on Friday we will see the Purchasing Manager Indices for the manufacturing, services and composite sectors. All in all, a busy week.
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