Halifax reported an increase in house prices of 1.0% for November, slightly above consensus forecasts of a 0.8% increase, with the year-on-year increase unchanged at 8.2%. There was no significant impact with expectations that the data would not have an impact on monetary policy. Sterling held firm into the New York open, but was unable to make further headway despite robust risk conditions. There were further expectations that the Bank of England would decide against an interest rate hike at the December policy meeting, primarily due to uncertainty over the Omicron variant. There were, however, also expectations of a hawkish policy statement which limited potential selling. Sterling retreated against the dollar while the Euro settled after again finding support. There was a recovery against the dollar on Wednesday, although there were still reservations over domestic Omicron developments and the Euro posted a net advance.
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The German ZEW economic sentiment index retreated to 29.9 for December from 31.7 the previous month, although this was above market expectations of 25.1. There was, however, a steeper than expected slide in the current condition’s component to -7.4 from 12.5 previously and well below forecasts of 5.0. The Euro-zone expectations index improved marginally to 26.8 from 25.9 previously which provided an element of relief. ECB council member Kazimir stated that it was important not to tinker with the APP bond-purchase programme. Fellow member Muller stated that it was not obvious that the central bank increase APP purchases beyond March given the high level of inflation. The Euro was unable to secure support ahead of the New York open with the single currency edging lower amid expectations that Euro yields would remain very low over the medium term. Political rhetoric will be watched closely with German Chancellor Merkel officially leaving office on Wednesday. Markets will remain on alert from hints over the outcome of next week’s ECB policy meeting, especially with the bank facing a high degree of uncertainty.
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The US Dollar is trading in a mixed range against its peers as a lack of significant US data limits ‘Greenback’ gains. USD is subdued by an upbeat market mood, although hawkish expectations for the Federal Reserve are providing some support.
The risk-on mood this morning is coming not just from Omicron reassurances, but also implications of the Fed’s faster tightening and tapering. Despite last week’s mixed employment data and ISM services PMI, investors are optimistic – what’s more, an uptick in the participation rate helped to counter the effect of disappointing non-farm payroll data.
Stubbornly high inflation in the USA encourages USD investors of necessity for action from the US central bank: the Fed funds futures indicate a high probability of Fed lift-off by May 2022. Also supporting US Dollar sentiment, the US Treasury bond yields have staged a solid bounce, triggered by risk-on flows.
Further significant trading impetus is likely to be revealed on Friday with the publication of key US inflation data. The report due later this week is expected to show that consumer prices remain the hottest in three decades.
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