Soft US data sends EUR/USD higher

Market movers today

• US markets are closed due to Thanksgiving.

• The OPEC meets in Vienna today. Whether or not it will cut its output target to curb the downward pressure on oil prices looks to be a close call. According to a Bloomberg survey 58% of analysts expect the OPEC to keep its target unchanged.

• Euro-area money supply and lending figures for October are released and we expect the latest improvements to continue. The increase in loans to households and the slower pace of decline in loans to non-financial corporations reduce an important headwind to economic activity in the euro area.

• Growth in M3 money supply has improved since April this year and we expect the trend to continue as we look for an increase of 2.8% y/y in October, up from 2.5% y/y in September.

• ECB’s Draghi is scheduled to speak at the Bank of Finland. In his speech last Friday he was more positive about expanding asset purchases than previously and we will watch if this message is repeated today.
  

• German inflation is expected to continue to slide in November, which we expect to be mirrored in the European inflation data released tomorrow.

Selected market news

A run of soft US data yesterday put downward pressure on treasury yields and send EUR/USD higher. The durable goods orders report showed a drop in core capital goods orders for a second month in a row, suggesting a significant slowdown in capex spending in Q4. Initial jobless claims increased by 31,000 last week, which likely reflects that the cold weather and snow storms are having an impact on hiring.

The final reading of University of Michigan’s consumer confidence for November was lowered slightly from the preliminary reading but still stands at the highest level in seven years. More important, inflation expectations in the survey trended lower with the 5-year ahead expectations down from 2.8% to 2.6%. This adds to other survey-based inflation expectations measures, which have also drifted lower in the past two months. The minutes from the October FOMC meeting showed that Fed members are paying close attention to these measures and if the downward trend continues it could move the timing of the first rate hike.

At a speech in London yesterday, ECB vice President Constancio added to the building expectations that the ECB will start buying sovereign debt next year. Draghi is scheduled to speak today and he might take the opportunity to repeat Constancio’s message.

Oil prices continued to drift lower ahead of today’s OPEC meeting.