There were no significant domestic influences during Friday with generally lacklustre trading conditions, especially with subdued conditions in the US. Sterling was vulnerable to a limited correction after strong gains during the week, but overall currency sentiment held firm on hopes for more effective government action to support the economy. Risk conditions were also still broadly benign despite some reservations over Chinese coronavirus developments. The latest CFTC positioning data will be monitored on Monday to assess whether there is still notable scope for a covering of short Sterling positions. Risk conditions were weaker in Asia on Monday which hampered Sterling sentiment and there were also reservations over strike action in the UK which will disrupt activity.
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German third-quarter GDP was revised slightly higher to 0.4% from the flash estimate of 0.3% with year-on-year growth of 1.2%. Consumer confidence recovered only marginally to -40.2 for November from -41.9 previously, but this was weaker than expectations of -39.5. There was, however, a strong recovery in Italian business and consumer confidence for November which offered some hope. There was further uncertainty over ECB policy following differing opinions during the week from two key officials. Chief Economist Lane stated that the arguments for a further 75 basis-point hike were not there, but key council member Schnabel adopted a more hawkish stance. Markets overall expect that the more dovish voices will prevail, but the Euro-Zone inflation data will be watched closely on Wednesday and another fresh record high would give further ammunition to the hawkish voices.
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14.00 Christine Lagarde Speech
Markets will also be waiting for the speech from Fed Chair Powell on Wednesday and the latest jobs data on Friday which will have a significant impact on Fed expectations. There will also be the potential for month-end position adjustment which could lead to choppy trading. In the meantime, the comments from other Fed members will be monitored closely in the short term to assess whether any shift in narrative is in prospect. There were some concerns over Chinese political protests during the weekend with evidence of a notable increase in action for coronavirus restrictions to be stopped. There were strong protests against lockdowns and mass testing in Beijing and Shanghai with criticism of President Xi also a notable and very unusual feature.
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