The UK CBI retail sales index strengthened to 39 for November from 30 the previous month and stronger than consensus forecasts of 32. Although there was some evidence of seasonal sales being brought forward, retailers were still optimistic over the outlook for December. There was a further increase in inflation pressures with selling prices increasing at the fastest pace since May 1990. The data maintained expectations of a near-term rate increase.Bank of England Governor Bailey focuses on communication difficulties and the narrow difference between commentary and guidance with a murky boundary between the two. He did note the risk that inflation expectations become embedded and reiterated that the UK labour market is very tight. The rhetoric suggested that the bank was more likely to raise rates in December, although market conviction was lacking given the November experience and clear divisions within the committee.
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German consumer confidence edged lower to -1.6 for November from 1.0 the previous month and slightly below consensus forecasts, maintaining unease over trends. Minutes from the November ECB policy meeting stated that temporary movements in piece and output in opposite directions should not be called stagflation. There was agreement that inflation would decline in 2022, although there were also remarks that the decline would take longer than expected. There were further comments in the minutes over the need to push back against market expectations of tightening and it emphasised the conditions that needed to be met for a rate hike.
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Liquidity will remain subdued on Friday with lacklustre trading in US markets. There will, however, be the risk that low volumes will contribute to higher volatility. Markets will also be wary over month-end position adjustment during the day. There was a sharp increase in coronavirus fears on Friday amid fears over a new variant. These fears curbed potential Euro selling with a closing of carry trades and the single currency edged higher as commodity currencies retreated sharply.
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