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As has been the case since Britain’s vote to leave the EU in June, the strongest currency in the pack continues to impact the others. However, after its record breaking run, the USD has come off its highs as the driver for the greenback, the probability of a December rate hike, is now cemented at 100%. Absolute certainty, according to markets. The result is that the Dollar now has to find reasons to strengthen elsewhere, either in forecasts for rate hikes through 2017 or hints at policy implementation by President-elect Donald Trump.
Macro data could provide yet another short term boost for the Buck, with key Employment data for November released Friday being the most pivotal. However, the most important reading in the latest US employment data dump will most likely be its latest measure of wage growth, Average Hourly Earnings, as the ‘Trumpflation’ trade that propelled the Dollar to 16 year highs loses some traction. Should the reading show a greater than expected uptick, not only can that 100% probability of a December rate hike be justified, but may also provide the impetus for the Fed to improve their 2017 rate hike outlook. Also keep an eye out for the latest Consumer Confidence and Personal Consumption figures on Tuesday for a measure of the impact of Trump’s election on domestic economic health in the US.
The Euro, having hit its lowest levels against the USD in over 12 months, is unlikely to find any respite in a week which culminates in the biggest political risk for the Eurozone since Brexit. Not only does the Italian referendum on constitutional changes double as a vote-of-no-confidence for PM Matteo Renzi (who despite trying to back track on his promise will leave office on December 4 should the ‘No’ vote win), but could also spell a resurgence in fears over the health of the country’s €4tn banking sector. The FT reports as many as eight of the country’s financial institutions could fail as a result on a ‘No’ vote, whilst many commentators have already gone as far as to suggest the Eurozone may be in danger of splitting should Italy disagree with the PM’s proposed reforms.
Currently, polls are reporting that the ‘No’ vote leads those backing the constitutional reforms, however given 2016’s polling track record you would be forgiven for reading those with a hefty dose of scepticism. Nevertheless, this could be third time lucky for the pollsters. A ‘No’ vote would likely see the Euro come under further pressure against its peers, not just due to the European banking sector contagion risk that the third largest EU economy carries but also the wider political implications that the vote would entail for the Eurozone as the reformist Renzi leaves office.
Note that the political risk in Europe is not solely focused on Italy. Sunday also sees the third running of Austrian elections, in which there is a very real possibility that the country’s right-wing populist Freedom Party becomes the first of its kind in power in Europe, further fuelling Marie le Pen’s presidential campaign in France next year. Watch this space.
Finally, Britain’s Pound may have last week enjoyed one of its few positive performances since the EU referendum, however the outlook for this week seems to be at direct odds with the past five days. Aside from the latest Manufacturing PMI reading on Thursday, a lack of significant macro data coupled with potential profit taking by investors after the currency’s sixth consecutive positive week of gains marks, its longest winning run since mid-2015, could leave the Pound in a perilous position, once again reliant on the performance of its peers to give it guidance.
Key data this week (Sign up here to get our daily live macro-calendar)
UK Economic Announcements
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Intl Economic Announcements
15:30 Dallas Fed (US)
23:30 Unemployment, Retail Sales (JP)
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UK Economic Announcements
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Intl Economic Announcements
07:45 GDP (FRA)
10:00 Confidence Indicators (EZ)
13:00 CPI (DE)
13:30 GDP, Personal Consumption (US)
15:00 Consumer Confidence (US)
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UK Economic Announcements
00:01 Consumer Confidence
09:30 Mortgage Approvals
Intl Economic Announcements
01:45 MNI Consumer Sentiment (China)
08:55 Unemployment Rate (DE)
07:00 Retail Sales (DE)
10:00 CPI (EZ)
12:00 MBA Mortgage Applications (US)
13:30 Personal Consumption Expenditure, Income & Spending (US)
14:45 Chicago PMI (US)
15:30 Crude Oil Inventories (US)
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UK Economic Announcements
09:30 PMI Manufacturing
Intl Economic Announcements
00:30 Manufacturing PMI (JP)
01:00 Manufacturing & Non-Manufacturing PMI (China)
01:45 Caixin Manufacturing PMI (China)
8-9am Manufacturing PMI (ITA, FRA, DE, EZ)
10:00 Unemployment (EZ)
13:30 Weekly Employment Figures (US)
15:00 Construction Spending, ISM Manufacturing & Prices Paid (US)
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UK Economic Announcements
09:30 Construction PMI
Intl Economic Announcements
10:00 PPI (EZ)
13:30 Non-Farm Payrolls, Unemployment (US)
Technicals
Technicals
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