Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Nov 17 08 07:48 GMT |

Overview & economic commentary Minutes of central bank meetings in the UK and the US are set to attract a fair amount of attention this week. The worsening economic backdrop in both countries was highlighted last week on most fronts, but standing out is the dire labour market situation in the UK and the US where companies are responding to the economic downturn by speeding up lay-offs to cut costs. The Bank of England was pretty forthright in its comments about the economy last week and governor King made no secret of the Bank's intention to lower interest rates again as soon as next month. What the rest of the MPC thinks of interest rates and whether the decision to slash the cost of borrowing by 1.5% two weeks ago was unanimous will emerge in the MPC minutes on Wednesday. UK CPI inflation plays a pivotal role in the Bank's policy strategy and the latest figures for October, due Tuesday, are forecast to show a decline to 4.7% from 5.2% in September. Retail sales data for October will be released on Thursday and an expected fall will be interpreted as evidence that gdp growth may contract in Q4. BoE MPC speakers Besley (Tuesday) and Gieve (Thursday) could play an important role in shaping policy expectations when they share their own opinion about the state of the UK economy. The minutes of the Fed FOMC meeting will also be published on Wednesday and may show how much support exists on the committee to cut interest rates further after last month's reduction to 1%. With the jobless rate rising, we suspect there is a consensus to do so. Currency commentary The G20 meeting offered no new concrete steps on how to halt excessive volatility in currency markets, putting the early focus today on the news that Japan slipped into recession in Q3. Sterling is languishing near Friday's lows in early trading in Asia, taking on board the negative UK house price data from the Rightmove. €/£ is bid above 0.8530. What the BoE MPC says, or does not say, on Wednesday is likely to be pivotal for short-term direction in sterling crosses. What happens to equities should equally have a say in whether market participants carry on unwinding long sterling positions. US industrial production data are likely to underscore the negative economic backdrop this afternoon and could set up equity markets to a negative start to the week. Worries about the fate of US automakers and the role of the TARP in removing toxic sub-prime assets off bank balance sheets means a pullback for the S&P back to 850 may be difficult to stop. Resistance runs at 890. Major data and events today Today UK Rightmove house prices EU-15 trade balance US Empire manufacturing survey, industrial production, capacity use ECB speakers: Tumpel-Gugerell (08:00), Weber (08:50) US Fed speaker: Hoenig and Duke (14:00) Tuesday UK CPI, RPI inflation US producer prices, Treasury Capital flows Japan leading and coincident indices ECB speakers: Tumpel-Gugerell (08:10), Stark (15:00), Liikanen (15:30), Trichet (18:30) BoE speaker: Besley (15:45) Wednesday UK CBI industrial trends survey US consumer prices, housing starts, building permits Japan trade balance Canada int’l secs transactions Bank of England MPC minutes (09:30) German auction of 5yr notes (10:15) US Fed releases minutes from FOMC meeting (19:00) US Fed speakers: Kohn (14:00) and Lacker (18:30) BoE speaker: Gieve (18:40) Thursday UK retail sales, public finances, money supply Initial claims, Philadelphia Fed survey German producer prices Canada wholesale prices UK DMO to auction £3bn of 4.5% gilts (10:30) Friday French consumer spending, manufacturing and services PMI German manufacturing and services PMI EU-15 manufacturing and services PMI Japan interest rate decision, rates expected to stay at 0.30% Canada consumer prices US Fed speakers: Bullard (02:00), Lacker (13:15), Plosser (17:15), Evans (17:40) ECB speaker: Ewald-Nowotny (09:00), Weber (10:30), Gonzalez-Paramo (11:30) Chart of the day: Sterling's depreciation vs dollar and euro has gathered momentum this month. BoE MPC minutes on Wednesday may be key whether this persists. Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. 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