Daily Report 15/12/2021

There was a muted impact from the latest labour-market data with the immediate Bank of England focus likely to be on the Omicron uncertainties rather than the underlying case for a tighter monetary policy. Markets also continued to monitor risk conditions closely. Sterling was unable to make headway into the New York open, but was broadly resilient later in the day despite a sharp retreat in US equity markets. The market consensus has switched towards expecting no change in interest rates from the Bank of England at Thursday’s policy meeting. Given the shift in expectations and market pricing this lessened the potential for further Sterling selling by hedge funds. The UK CPI inflation rate increased sharply to 5.1% for November from 4.2% previously, above consensus forecasts of 4.7% and the highest rate for just over 10 years. The core rate also increased to 4.0% from 3.4%. The sharp increase will maintain pressure for a bank of England response and Sterling edged higher after the data but expectations are still that the central bank will keep rates on hold this week.

Key Data 

7.00 Consumer Price Index (YoY) (Nov) Act. 5.1% Exp. 4.7 % Prev. 4.2%

The Euro was able to make headway ahead of Tuesday’s New York open with a move higher against the dollar despite a lack of yield support. There was further evidence of Euro short covering ahead of key central bank policy meetings this week. However it was unable to hold and there was a significant retreat later in the day as underlying yield spreads remained negative for the single currency.

No Key Data

The US NFIB small-business confidence index edged higher to 98.4 for November from 98.2 previously. Companies, however, did express increased uncertainty and there was also strong upward pressure on prices with price increases seen at the fastest rate since 1979. US producer prices increased 0.8% for November, above consensus forecasts of 0.5% with the year-on-year rate increasing to 9.6% from 8.8% and above market expectations of 8.8%. Core prices increased 0.7% on the month with the annual rate increasing to 7.7% from 7.0% and above forecasts of 7.2%. This was the highest core rate since the data series started in 2014, maintaining underlying concerns surrounding inflation trends. The data had some impact in increasing inflation concerns ahead of Wednesday’s Federal Reserve policy decision. There are widespread expectations that the Fed will announce a faster pace of asset-purchase tapering and that the interest rate forecasts by individual Fed members will also be increased.

Key Data

13.30 Retail Sales (MoM) (Nov) Exp. 0.8% Prev. 1.7%
13.30 Retail Sales Control Group (Nov) Exp. 0.8% Prev. 1.6%
19.00 Fed Interest Rate Decision Exp. 0.25% Curr. 0.25%
19.00 Fed Monetary Policy Statement
19.00 FOMC Economic Projections
19.30 FOMC Press Conference