UK Inflation Report and European Politics

With Thanksgiving week meaning volume is particularly low we are looking towards the calendar more in hope than expectation, as a lot of the major announcements are bought forward and lack the normal intensity. This won’t stop the market looking towards the UK data however, as today sees a warm up to the UK’s first autumn budget as Mark Carney delivers the UK inflation report. Elsewhere US existing home sales and redbook figures finish the day off, so as ever there will be a focus on whether the major indices can end in positive territory, especially on the Dow Jones and S&P as traders continue their fascination with whether the US stock market rally will continue.

The inflation report is likely to be closely watched ahead of tomorrow’s Budget, for the forecasts that Mark Carney will put out. We already know that inflation in the UK is running above expectations at 3%, with very little chance of that falling in to the last month of the year. With a recent BoE rate hike ringing in peoples ears, and hitting the public’s pockets it will be a case of continuing to survey the damage that Brexit is inflicting on the UK economy. Already we have seen GDP expectations drop along with wages, as inflation has risen above the 2% target to levels not seen for a number of years.

What will be interesting will be just whether there are any discrepancies between what Mark Carney delivers regarding Brexit and what Chancellor Phillip Hammond delivers on Wednesday. Carney will likely have the more honest assessment of just what the negotiations, and lack of progress are doing to jobs, wages and the overall cost of living. Whereas the chancellor will likely have his rose tinted glasses on, handed to him just before he stands up in the commons by PM Theresa May.

So with the data in mind it will be Sterling currency pairs and the UK stock market that’s in focus, and in recent weeks we have seen a steady move to the upside on GBPUSD as the market looks like it has bottomed out at the lower support levels down at 1.3015. We must however be wary of Mark Carney going in hard on Brexit negotiations as any negativity around the laborious process will likely cause a retest of these lower support levels.

The US dollar has had its troubles overnight in the Asian session as yesterday yet again showed no progress on the US tax reform that we are all waiting for. The other area we must watch today is around European politics after Angela Merkle’s admission that she is not looking to form a minority government after talks broke down yesterday. The prospect of more elections in Germany have done little to the Euro over the past 24 hours, but with very few decisions made around new elections and Germany politically in limbo we should brace ourselves for a delayed reaction.