Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Nov 19 08 07:48 GMT |

Overview & economic commentary The minutes of the Bank of England's 5/6 November MPC meeting and of the US Fed's 28/29 October meeting are published today at 9:30 and 19:00, respectively. We do not expect any surprises from either set of minutes - both decisions to cut rates are likely to have been unanimous and their tone will be bearish. But they are still expected to attract attention as market participants are widely anticipating further interest rate cuts next month so any events/speeches that could give hints of their size will draw focus. As well as the minutes, the US publishes consumer price inflation data for October which may come in lower than expected given the 2.8% monthly drop in producer prices released yesterday. The market median forecast is for a decline of 0.8% on the month and growth of 4.1% on the year compared with 4.9% in September. Core prices may have edged up 0.2% on the month, representing 2.4% growth on the year (2.5% in September). Should consumer prices come down more sharply than initially thought the Fed will be more likely to cut rates again and to hold onto negative real rates for longer. Also due, US housing starts and building permits for October will be weak after the NAHB index fell to a new record low of +9 in November. US Fed speakers today include Kohn and Lacker, speaking in Washington on the sub-prime crisis. In the UK, the CBI industrial trends survey for November is published - we expect a fall in the confidence balance to -45 from -39 in October. John Gieve, BoE Deputy Governor for Financial Stability and MPC member speaks at Regent's College in London at 18:40. Currency commentary Sterling held firm to this week's gains o/n and we see no immediate reason for selling pressure to immediately resume. The BoE MPC minutes should reveal a unanimous vote for this month's rate cut. There could be a surprise however with regard to the preference for a smaller cut by a few members on the MPC (Besley/Sentance?), but this should not have a major impact on how sterling reacts. £/$ is bid above 1.4950 but ideally should extend above 1.51 to restore some confidence. The decoupling of sterling with the trend in UK banking stocks is a noticeable change compared to this summer and suggests that developments in overseas markets may well dictate the next sterling move. US housing data is due this afternoon. £/yen retreated back below 145.0 o/n as Asian equities drop (except Shanghai). There was some reprieve from selling EM fx o/n following 3rd successive sessions of losses. €/zloty slipped back below 3.8250. Nok and C$ may take a lead from US crude oil inventories at 3.30. Major data and events today UK CBI Industrial trends survey (11:00) Oct -39 Nov (f'cast) -45 Median -41 Range -50:-35 US consumer prices (13:30) Sep zero Y-O-Y +4.9% Oct (f'cast) -0.8% Y-O-Y +4.1% Median -0.8% Range -1.2%:-0.1% US consumer prices ex-food, energy (13:30) Sep +0.1% Y-O-Y +2.5% Oct (f'cast) +0.2% Y-O-Y +2.4% Median +0.2% Range zero:+0.2% US housing starts (sa) (13:30) Sep 0.817mn Oct (f'cast) 0.780mn Median 0.780mn Range 0.744mn:0.87mn US building permits (13:30) Sep 0.805mn Oct (f'cast) 0.780mn Median 0.773mn Range 0.73mn:0.88mn Japan trade balance (BoP) (00:50) Sep +Y88.5bn Oct (f'cast) +Y70.0bn Median +Y71.8bn Range -Y250bn:+Y800bn Canada int'l secs transactions (13:30) Aug -C$0.7bn Sep (f'cast) -C$1.1bn Median -C$1.0bn Range -C$3.5bn:+C$1.0bn Bank of England publishes minutes of 5/6 November MPC meeting (09:30) Germany to auction 5yr notes (amount tbc) (10:15) US Fed members Kohn (14:00) and Lacker (18:30) speak in Washington on the subprime crisis BoE member Gieve speaks at Regent's College, London (18:40) US Fed releases minutes from 28/29 October FOMC meeting (19:00) US DOE publishes weekly oil inventory data (15:35) Chart of the day: Will yesterday's larger than expected drop in US producer prices for October be matched by a sharper than forecast decline in CPI inflation today? 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