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UK Rates Stay Unchanged

Bank of England Leaves Monetary Policy Unmoved in Latest Decision

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The Bank of England Monetary Policy Committee announced on Thursday their voting results in favor of keeping interest rates and asset purchases unchanged at present levels. Consumer inflation below zero and a resumption of the slide in commodity prices combined with recent mixed economic data saw the Central Bank punt on any policy shifts until 2016.

Record Low UK Rates Maintained

The Bank of England kept the benchmark interest rate at 0.50%, with record low levels in place since March of 2009. Committee members involved in the voting process on policy remained unchanged in their positions, voting 8 to 1 to maintain policy with only McCafferty insisting on a hike to 0.75%. The BoE’s decision was made easier based on inflation below zero and recent mixed economic data along with a continued drop in oil prices. The strong sterling and weakening commodity prices are reducing the likelihood of inflation rising back to targeted levels over the near-term. A rebound depends on sufficient domestic cost growth being able to balance the drag on prices caused by global disinflation and increases in the value of the Pound. One item expected to improve the economic climate is fiscal spending cuts announced by the Finance Minister that will give a boost to growth next year.

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French Consumer Prices Fall

French consumer prices dropped on a monthly basis by -0.20% after CPI gained 0.10% in October. The main contributors to the decline, regarded as partially seasonal, occurred in fresh food, medical products and services, manufactured products, energy with the highest decline reported in transport and communication services. Actual rentals and services costs for homes were kept unchanged. Europe’s second largest economy showed stabilization on the core inflation indicator month on month remaining at 0.10% in November as in the previous month’s data. Year on year consumer prices remained also unchanged, mirroring October’s 0.10% rise. Despite the drop on a monthly basis, food prices and services recorded an annualized increase, offsetting the decline recorded in cost of manufacturing products and energy.  Although the French CAC 40 managed to rebound modestly during the previous session, futures contracts have since reopened weaker.

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Switzerland Leaves Policy Unchanged

Policymakers at the Swiss National Bank left interest rates on hold at -0.75% in December, marking a record low as the Central Bank works to fight speculative inflows and insulate the domestic economy. The SNB is willing to intervene in the currency market, if necessary, to weaken the “significantly overvalued” Swiss Franc according to officials. The Central Bank is currently targeting a soft EURCHF peg between 1.0500 and 1.1000 in an effort to keep the economy competitive with negative rates helping to keep the Franc unattractive for haven flows. Although growth has been anemic, the SNB sees growth in the pipeline with expectations of 1.50% expansion next year. Inflation is also expected to fall -0.50% next year before beginning its ascent in 2017. The Franc managed to appreciate modestly following the decision after disappointing analysts expecting increased action from the Central Bank.

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US Initial Claims Surge

The Department of Labor recorded a rise in the number of US citizens filling for first time initial jobless claims benefits for the week ending December 5th. The prior weeks’ number and expectations were surpassed to the upside by 13,000 people, indicating 282,000 people filing for unemployment benefits. The rise that occurred last week is attributed to seasonal factors and the modification of the layoff data due to the nearing holidays. The reported figures were the highest in more than 20-weeks when claims reached 296,000.  The 4-week average also indicated an increase from 269,250 to 270,750. As long as initial claims remains below 300,000 the labor market appears healthy and may not affect the Federal Reserve’s expected rate hike next week.  Although the S&P 500 rose on the session, most of the gains were given back during the cash equity session.

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