Sterling was able to make headway against the dollar in early Europe on Monday, but was unable to make a challenge on highs seen last week and the UK currency also lost ground against the Euro. The latest CBI retail survey recorded a sharp decline to -19 for November from 18 previously and well below consensus forecasts of 2. Retailers also expect that there will be a further decline for the crucial month of December and retailers remain broadly pessimistic over the outlook while price increases were close to the fastest level for 37 years recorded for August. The data maintained reservations surrounding the spending outlook and wider economy. UK equities were broadly resilient during the day, but overall risk appetite was weaker which undermined potential Sterling support.
Key Data
15.00 Andrew Bailey Speech
Euro-Zone M3 money supply growth slowed to 5.1% in the year to October from 6.3% previously which suggests that ECB rate hikes have had some impact in slowing liquidity growth. In testimony on Monday, ECB President Lagarde stated that rates are still in an accommodative range and that there is still upward pressure on inflation. In this context, she added that rate hikes still have a long way to go. According to Lagarde, incoming data suggests upward pressure on wages and the bank will continue to assess the policy implications. ECB member Knot stated that a recession is not a foregone conclusion while underlying inflation trends are worrisome. There were some concerns that protests in China would trigger renewed stresses in global supply chains which would also risk renewed upward pressure on inflation. These concerns put upward pressure on German yields and helped underpin the Euro in early Europe with the Euro posting 5-month highs against the Dollar.
Key Data
13.00 German Harmonised Index of Consumer Prices (YoY) (Nov) Exp.11.3% Prev. 11.6%
CFTC data recorded a further net increase in dollar shorts to the highest level since July 2021, limiting the potential scope for further US selling. The Dallas Fed manufacturing index recovered slightly to -14.4 for November from -19.4 previously. There was, however, a faster rate of decline in new orders with slower employment growth and an easing in inflation pressures which would support the case for a less aggressive Fed stance. In a media interview, Cleveland Fed President Mester stated that she did not think that the central bank is near a pause in interest rates with the bank needing to see several more good inflation reports and more signs of moderation in the economy. New York Fed President Williams expressed some confidence that there were signs of moderating inflation and supply-chain improvements. He added, however, that inflation risks are still on the upside and also expected that rates would not be cut until 2024. Richmond Fed Barkin stated that interest rates will need to rise further if inflation remains high.
No Key Data