Data Dependent Markets Anticipate Central Banking

Weekly Report - 29/11/2015

Expectations of Renewed Monetary Policy Adjustments Drives Market Momentum

Amidst the shortened holiday week, financial markets were abuzz with speculation ahead of the upcoming monetary policy decisions. Data proved mixed with the Euro Area getting a boost regionally while policymakers warn of further accommodation while the United Kingdom and Japan intend to keep policy steady ahead of the projected policy shifts from the United States.

Weekly Review

Economic data from across the globe showed a mixed outlook with figures from United States largely positive despite some disappointments. Durable goods orders managed to record substantial gains while the second estimate of third quarter GDP came in more positive than the earlier estimate, printing at 2.10% quarterly expansion versus the 1.50%. Nevertheless, consumer confidence continues to stumble and housing data came in weaker than forecast with existing home sales dropping and new home sales falling short of expectations. Across the Atlantic, more positive data from the Euro Area manufacturing and services failed to offset an increasingly dovish tone from ECB policymakers with deeper than projected interest rate cuts expected in the upcoming Governing Council meeting. The revision of UK GDP saw no changes to the stable growth already recorded while the Central Bank cautioned on inflation. The Bank of Japan also warned that the 2.00% inflation target would not be hit until the second half of 2016 amid deflationary pressures evidenced by the core annualized consumer price index reading at -0.10%.


The Week Ahead

The upcoming trading week will stand in stark contrast to the prior sessions which were marked by below average volumes. The main event is the approaching ECB policy decision which is likely to include a combination of interest rate cuts and potentially expanded asset purchases that focus on municipal bonds of member sovereign states. These developments could rapidly drive the Euro lower, especially if the accommodation proves more than anticipated by market participants. The ripple effects will be most acutely felt in other regional economies with negative rates including Switzerland, Sweden, and Denmark which might be forced to adjust policy further to account for any ECB action. The other major announcement is US nonfarm payrolls on Friday with any strong figure likely to further raise the probability of a rate hike during the December FOMC Meeting. Other important data points include Chinese manufacturing figures and a slew of Canadian announcements including an interest rate decision, GDP report, and payroll count.


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