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LATEST MARKET NEWS

Fundamental Analysis 15.12.2017 - Market Outlook
The new forecasts for 2020 that the European Central Bank (ECB) revealed yesterday showed that the Bank doesn’t expect to hit its 2% inflation target even then (only 1.7%). The news suggested that European Central Bank interest rates would have to be held low for longer than the market expected and sent the EUR lower.



European Central Bank President Mario Draghi said inflation had “yet to show convincing signs of a sustained upward trend” and that “an ample degree of monetary stimulus therefore remains necessary,” such as continuing the Bank’s asset purchase program. In fact, the market now sees a rate cut as about as likely as a rate hike over the next 10 months – both improbable, but nonetheless equally improbable. This is a stark contrast with the Federal Reserve, which revised up its forecasts for interest rates on Wednesday 13th December 2017, particularly in 2020. The return of “monetary policy divergence” is likely to weigh on EUR/USD.

The Bank of England said that “further modest increases” in interest rates are likely, but not yet as the Monetary Policy Committee voted unanimously to keep rates steady. GBP was buoyed less by the Bank of England meeting than by the many favorable comments about UK Prime Minister Theresa May emanating from the EU Summit, where a number of national leaders voiced their support for Theresa May.

JPY rallied sharply in early US trading, apparently as a result of the dovish European Central Bank meeting, which diminished the yield disadvantage of JPY relative to EUR. Weak stock markets also helped JPY. The mixed results of the tankan had little effect on the currency; large manufacturers did better than expected, but large non-manufacturers – which tend to have more of an impact on the currency – did worse. 

Today’s market

The morning will be taken up by the end of the EU summit and the various press conferences afterwards. Of course Brexit will dominate the discussions.

Canadian manufacturing sales are forecast to rise past what the recent trend would suggest. That could be positive for CAD, but this second-tier indicator doesn’t have such a strong correlation with the currency’s movement. 



The Empire State Manufacturing Index is the first of the several regional Federal Reserve indices to be announced. The index is expected to be down somewhat. This would be contrary to the recently announced Markit Purchasing Managers' Index for the month, which rose sharply to 55.0 from 53.9.



US industrial production for November 2017 is forecast to rise at an above-trend pace. It will almost certainly be below October 2017’s increase, but that month was distorted by the return to normal after the hurricanes depressed output in August 2017 and September 2017. The industrial production figures should show the results of the large increase in factory hours worked that appeared in the November 2017 employment report. .



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.




 

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