BOE minutes today may give GBP a push either way


MAJOR HEADLINES – PREVIOUS SESSION

  • US Oct. PPI out at +0.3% m/m vs. +0.5% expected and -0.6% prior

  • US Oct. Core PPI out at -0.6%m/m vs. +0.1% expected and -0.1% prior

  • US Sep. Net Long-term TIC flows out at $40.7b vs. $30.0b expected and revised $34.2b prior

  • US Sep. Total TIC flows out at $133.5b vs. revised $25.3b prior

  • US Oct. Industrial Production out at +0.1% vs. +0.4% expected and revised +0.6% prior

  • US Oct. Capacity Utilization out at 70.7% vs. 70.8% expected and 70.5% prior

  • US Nov. NAHB Housing Market Index out at 17 vs. 19 expected and revised 17 prior

  • US Weekly ABC Consumer Confidence Index out at -45 vs. -46 prior

  • AU Sep. Westpac leading Index out at +0.9% m/m vs. revised +1.3% prior

  • JP Oct. Final Machine Tool Orders out at -42.5% y/y vs. -42.6% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • EU ECB’s Trichet to speak (0840)

  • EU Euro-zone Current Account Balance (0900)

  • UK BOE Minutes (0930)

  • EU Construction Output (1000)

  • UK CBI Industrial Trends (1100)

  • CA CPI (1200)

  • US Weekly Mortgage Applications (1200)

  • US CPI (1330)

  • US Housing Starts (1330)

  • US Building Permits (1330)

  • US Fed’s Bullard to speak (1415)

Market Comments:

The dollar pendulum once again swung into bullish territory yesterday with Bernanke’s comments on the dollar on Monday being followed up by similar comments from the Fed’s Lacker overnight. Lacker restated that the Fed would pay close attention to the value of the dollar to the extent that it has implications for the dual mandate of inflation and growth. Trichet was also in repetition mode, stating that a strong dollar was in the interests of the entire international community. Adding further impetus to the dollar’s rally was news that overall demand for US assets remained robust. TIC data showed a net inflow of $40.7 bln in September, up from the $34.2 bln seen the previous month, with most inflows destined for US Treasuries and equities.

Despite the stronger tone for the dollar, gold managed to stage a rebound from sub-1,130 levels. Concerns about long-term inflation were cited as reasons for the rebound while news that the IMF had sold 2 tonnes of gold to the Central Bank of Mauritius, in a similar vein to the deal with the Reserve Bank of India earlier this month, as part of its on-going re-funding process. Only another 403.3 tonnes to go.

Another currency that managed to hold its own against the rising dollar was GBP, for a change. UK inflation again surprised to the upside – CPI coming in at +0.2% m/m versus +0.1% expected and retail prices up 0.3% m/m versus 0.1% expected – and this lent support to the pound. In addition, MPC member Sentence, a noted hawk, commented that the UK economy was moving towards recovery, despite the Q3 data showing a contraction. He suggested that the latest BOE forecasts show there were risks of keeping monetary policy too loose for too long. Next up are the minutes of the last BOE meeting when the £25bln in additional quantitative easing was announced. Of particular interest will be the voting on this matter, and whether there was a deeper discussion about an increase of £50 bln. Watch GBP like a hawk (or a dove!).

Noted RBA watcher Terry McCrann came out and spoiled the “rate pause” party for December, signaled by a mildly dovish RBA minutes, when he re-opened the case for a 25bp rate hike at the next meeting. This helped fuel an overnight bounce in AUDUSD from the lows, helped along by a rebound in gold, but the rally stalled in Asia above the 0.93 mark. Australian data releases were not particularly bullish for the AUD however and the morning saw a slow drift lower. Westpac’s leading index rose 0.9% m/m in September following a revised 1.3% gain the previous month (though annualized growth picked up to 5.8% from 3.8% prior) and the coincident indicator (a measure of the current state of the economy) rose 0.2% m/m. wage growth, as measured by ABS’s Wage Price Index showed a slower pace of gain in Q3 than the previous quarter, rising 0.7% q/q, bang in line with forecasts. Annual growth however showed its slowest pace of growth in 5 years at +3.6% y/y and looks set to slow further, thus helping to contain inflation.

Fan gang, a member of the Peoples Bank of China’s MPC warned that China needed to be alert to the danger of asset bubbles, again targeting the ultra-loose policies of the US for fueling speculative investment in stock and property markets which may pose new, insurmountable risks to the global economy. Similar criticism came from the Chairman of the China Banking Regulatory Commission on Sunday.

Apart from the BOE minutes, Europe can expect Euro-zone current account data and another speech by Trichet (another opportunity to beat the strong dollar drum?). The US session features CPI data from both the US and Canada followed by housing starts and building permits. There is also more Fed speak from St Louis President Bullard.