EU backing for May after loss of Brexit vote

Market movers today

• Following the ‘Central Bank Super Thursday’ yesterday, we have a relatively light data calendar today.

• Focus remains also on the EU summit in Brussels, where the Brexit discussions are scheduled to take place today. Following Wednesday’s defeat about a parliamentary vote on the final Brexit deal, PM Theresa May’s posit ion has weakened in t he negotiations.

• In the US, industrial product ion for November and Empire manufacturing index for December are due to be released today.

• In Russia, we expect the central bank to cut its policy rate to 8.0% from 8.25%.

• In Denmark, Finance Denmark’s housing market statistics for Q3 are due out .

Selected market news

The ECB left policy measures and forward guidance unchanged, while lifting its growth forecasts. As expected, the ECB reiterated that policy rates would remain at current or lower levels for an extended period and well beyond the horizon of asset purchases. Meanwhile, however, the forecast were lifted, particularly for 2018 (lifted to 2.3% from 1.8% in September). The inflation forecast was also lifted from 1.2% to 1.4% in 2018. Reflecting the stronger out look, Mario Draghi stressed that the ECB is growing more confident in its ability to meet the inflation target eventually. We expect the ECB to taper APP purchases to zero in Q4 18 and deliver the first deposit rate hike in Q2 19. See ECB review - Christmas mood leaves QE exit decisions for 2018, 14 December, for more details.

EU backing for May after loss of Brexit vote . Yesterday, several EU leaders expressed support for the UK Prime Minister after she had lost a vote on Wednesday meaning that the UK parliament will have a vote on the final Brexit deal. However, at the EU summit , there were warnings to UK MPs that the EU would not have the time nor will to renegotiate a Brexit deal.

In terms of economic data, the strong US retail sales took focus yesterday. Sales were up by 0.8% in November, well above expectations for a 0.3% rise. Also, October retail sales were revised higher to 0.5% from 0.2%, while the core retail sales rose 0.8% in November. The dollar index rose 0.1% as a result , while 10Y US Treasury yields were 2bp higher, closing at 2.35%.

Yesterday, Turkey’s central bank left its benchmark repo rate unchanged at 8.00% as expected. Yet , the late liquidity rate was raised by 50bp to 12.75%, as inflation has accelerated to a multi-year highest and t he T RY’s volatility has surged recently.

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