US Inflation Data in Focus as Markets Dial Back Rate Hike Expectations

The US dollar has been kept in line as expectations grow for the Federal Reserve to bring down their forecast of rate hikes for next year. Interests rates are expected to head higher, but a recent wrath of weaker economic data and dovish talk has brought expectations for the December 19th meeting from over 79% at the start of the month to 74.0% as of the close on Tuesday.
Current expectations for the Labor Department report is for headline CPI to fall to a flat reading from a prior 0.3% rise. The annual reading is also expected to fall 3/10 of a percentage point to 2.2%. Core inflation on a monthly basis is also expected to remain steady, while the year on year reading is to tick higher to 2.2%. The extended selloff with oil prices will weigh on headline price growth, but will most likely not be seen as a defining easing of price pressures.

• Sir Graham Brady meets with PM May (could find out if he has the 48 letters for the leadership challenge)
• US CPI readings and a 10-year bond auction
• EIA crude oil inventories

Conservatives may have the 48 letters to trigger a leadership challenge
Cable got pounded after reports circulated that the threshold of 48 letters was reached and that confirmation will happen on Wednesday. The rebels need to submit 48 letters to Sir Graham Brady, the 1922 chairman, to trigger a vote of no confidence in Mrs May’s leadership.  Sterling extended its decline after news Sir Graham Brady asked to see the Prime Minister on Wednesday.  GBP/USD is trading at 1.2481, the lowest level since April 2017.

Prime Minister May’s meeting with German Chancellor Merkel did not yield any concessions. Merkel reiterated that the EU would not reopen the deal.  The Prime Minister was also unsuccessful with various leaders on receiving any changes to the Brexit agreement or reassurances that the deal’s controversial backstop arrangement for Norther Ireland was temporary.

Oil rises on Libya’s shutdown and optimism that OPEC + production cut will stabilize prices
West Texas Intermediate rose 2.00 percent on Tuesday. WTI is trading at $52.01 after Libya’s largest oil field remains shutdown and optimism improved that the OPEC and allies production cut that was reached last week will stabilize the oil market. Price is also starting to show signs of a bottom with the $49.41 low made on November 29th. Despite initially giving up all the gains from production cut decision, oil prices continue to respect the $50.00 level. With the US poised to end 2018 as the top oil producer, many will pay close attention to EIA weekly oil inventories report. Last week, crude stockpiles fell by 7.3 million barrels, ending a 10-week streak of increases. Expectations are for stockpiles to fall by 3.0 million barrels.

Bitcoin Mania No Longer Running Wild
Bitcoin fell 0.63 percent on Tuesday. The cryptocurrency bubble has popped and this latest crash has not shown any signs of slowing down. Over the past couple years, Bitcoin has experienced many crashes over hacking issues, the futures debut which allowed for short selling, but this recent dive is more on concerns it could become worthless.

Market events to watch this week:
Wednesday, December 12
3:00am ZAR Consumer Price Index (CPI)
3:30am SEK Consumer Price Index (CPI)
08:30am USD Consumer Price Index (CPI)
Thursday, December 13
2:00am EUR Germany Consumer Price Index (CPI)
2:45am EUR France Consumer Price Index (CPI)
3:30am CHF Swiss National Bank (SNB) Interest Rate Decision
06:00 TRY Turkey Central Bank (CBRT) Interest Rate Decision
07:45am EUR European Central Bank (ECB) Interest Rate Decision
9:00pm CNY China Industrial Production
9:00pm CNY China Retail Sales
Friday, December 14
3:15am EUR France Preliminary PMI readings
3:30am EUR Germany Preliminary PMI readings
4:00am EUR Euro Zone Preliminary PMI readings
8:30am USD Retail Sales m/m
9:45am USD Preliminary Markit PMI Readings

*All times EDT