Markets poised ahead of BoE and ECB decisions today
04/Σεπ/2014 • Currency Updates•
The beginning of the week saw GBP/USD performing badly, dropping 1% and bringing cable to six month lows. This comes ahead of the beige book released last night in the US and the Bank of England interest rate decision today. Across the channel commentary is focused on the ECB meeting and contrasting accounts of the Ukraine ceasefire.
Good data out yesterday from the UK with services PMI released at 60.5 vs. 58.5 forecast and composite PMI at 59.3, up 0.9 from last month. The FTSE 100 rose 0.66% yesterday, reaching an intraday high not seen since 2000.
The focus of today is on the BoE interest rate decision at midday. This is expected to remain constant. With 2.5% annualised wage growth the market is expecting the interest rate to remain at 0.5% until the Bank of England’s wage growth concerns are abated. Of note is that this is the last MPC meeting before the Scottish independence referendum.
Tomorrow, a further release from the Bank of England, with the GFK inflation highlighting forecasts for the next 12 months. This was at 2.6% last month following continual decreases over the last few years with the UK recovery. With last month’s figure showing the closest to the banks 2% target post-recession.
Eurozone retail sales came out below expectation at 0.8%, down from 1.9% last month, but with little affect as the market was focusing on back and forth press releases from the EU and Russia highlighting that a cease fire had been arranged. However, there was a cautionary release from Putin pointing out that there would be de-escalation between state forces and not that of the rebels. Nevertheless, we say equity indices will rise on this good news with the S&P 500 reaching new highs.
At 12:45 we have the ECB’s interest rate decision expected to remain at 0.15%, any good news concerning this will likely see an exaggerated uptick on the euro vs counterparts, with bad news likely to provide a small down tick. This is due to speculative money having already left the common currency; as such the euro will likely meet resistance not far below its current rate. Whilst at the same time strong commentary will provide a green light as it will be perceived that the ECB have the situation in hand. Markets will be following closely the ECB’s press release at 13:30 looking for any further forward guidance.
Tomorrow Eurozone GDP figures are likely to remain at a 0%, highlighting the continuing ‘permacession’.
Wednesday saw US factory orders for July come in at 10.5%, against the 11% forecast; this did little to influence the greenback, despite being the largest gain since records began in 1992. The beige book released last night a report of anecdotal evidence as to the state of the US economy which provided strong evidence in favour of a bullish stance. The key points being improving banking conditions and strong growth in the automobile sector.
The IS crisis escalated yesterday as Obama announced he was sending troops to Baghdad in order to protect diplomatic institutions. This happened hours after the second beheading video was released, demonstrating that the US does not see the IS as an empty threat.
Today ISM non-manufacturing is released at 15:00 with 57 forecast, down from 58.7 last month. This indication of business conditions in the non-manufacturing sector has shown an increasing trend in the last few months. This is combined with both continuing and initial jobless claims which will be released at 13:30 and we will likely receive indications as to the big data coming out this week from the US. Nonfarm payroll will be released on Friday, expect volatility.