European FX Outlook: Will wages stall in the UK?

What you need to know before markets open:

  • With the UK inflation taming in October, the focus is on wage growth for September.
  • The US retail sales and even more importantly US CPI will be in market focus in the US trading session.

Wednesday’s market moving events

  • Japan’s GDP rose 0.3% q/q while rising 0.1% y/y.
  • RBA assistant governor Ellis is due to speak about the future of economic growth in Australia at the 2017 Stan Kelly Lecture, in Melbourne at 7:00 GMT.
  • Chicago Fed president Charles Evans is due to participate in a panel discussion titled "From Quantitative Easing to Quantitative Tightening – Is it for Real?" at the 2017 UBS European Conference, in London at 8:00 GMT.
  • The UK unemployment rate is expected to dwell at a 40-year low of 4.3% in September, while wages are set to decelerate to 2.1% y/y including bonuses.
  • Eurozone trade balance is expected to shrink to EUR 21.4 billion in September.
  • Eurozone industrial production is set to fall -0.6% m/m in September.
  • The BoE´s deputy governor Broadbent is giving a speech in London School of Economics about Brexit at 13:00 GMT.
  • The US Empire State manufacturing index is set to decelerate to 26.0 in October.
  • The US retail sales ex-auto are expected to rise 0.2% m/m in October after rising 1.0% in the previous month
  • The US CPI is expected to rise 0.1% m/m, while inflation is expected to decelerate to 2.0% y/y. Core inflation is expected to rise by 1.7% y/y.

Major forex market movers

  • EUR was the winner of the day on Tuesday after very solid GDP growth in Germany and the Eurozone.
  • Watch GBP falling prey to the UK wage growth or/and unemployment.

Tuesday’s macro summary

  • German Q3 GDP rose 0.8% q/q while rising 2.3% y/y, coming in better than expected.
  • German CPI decelerated to 1.6% y/y in October.
  • Chicago Fed president Charles Evans said that for any new policies to succeed, Fed must deliver on current 2% inflation target. Evans also called for new policy approach to deal with future bouts of zero interest rates with price-level targeting may be a good way to go, but needs more study.
  • Italy’s Q3 GDP increased 1.8% y/y compared to 1.5% y/y in Q2.
  • ECB's Daniele Nouy said the clock is ticking for banks looking to leave the UK after Brexit, and the affected banks have to move quickly.
  • Dallas Fed president Robert Kaplan said for the Financial Times that he is “actively considering” December rate hike.
  • The UK CPI remained flat on a monthly basis while rising 3.0% y/y in October, falling short of market expectations and pairing the peak from April 2012.
  • The Eurozone GDP rose 0.6% q/q while rising 2.5% y/y in Q3.
  • German ZEW investors sentiment rose to 18.7 in November compared to 17.6 in the previous month.
  • The Eurozone industrial production fell -0.6% m/m while rising 3.3% y/y in September.
  • The ECB communication conference hosting central banking superstars like ECB president Draghi, Federal Reserve chair Yellen, BoE Governor Carney, and BoJ Governor Kuroda is not getting much market response.
  • The US PPI rose 0.4% m/m while rising 2.8 % over the year in October, accelerating from 2.6% y/y a month ago. After excluding food and energy prices, PPI rose 2.3% y/y.
  • The St. Louis Fed president James Bullard said that current interest rate level is likely to remain appropriate over near term while GDP in the second half of 2017 may surprise on the upside. Low unemployment is not the obstacle to higher inflation.

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