Lackluster Markets Await Central Banks

Markets were somewhat lackluster on Monday, and that trend appears set to continue Tuesday as traders await a host of Central Bank meetings starting on Wednesday, with the Federal Reserve expected to hike rates at their last FOMC meeting of 2017. With the markets “pricing-in” a hike of 0.25%, we are likely to see a degree of USD volatility as positions are squared and new positions opened. The focus will be on the outlook for next year and beyond, with the markets debating the impact of coming policy normalization on global asset markets.

GBP has retreated from recent highs, as optimism has faded following the “deal” made between the UK and the EU last week. The Rand Corporation, an influential US “think-tank”, recently released a study stating that nearly all the possible trading relationships between Britain and the European Union following Brexit would be less favorable than staying in the European Union. The study said the worst option would be a “no deal”, which would leave the UK economy 4.9% poorer by 2029. The study also said that even a “soft Brexit”, which would involve staying in the free market, would not be as positive economically as staying in the EU. According to Rand, there is only 1 option that would leave the UK better off outside the European Union: a comprehensive 3-way free trade deal between Britain, the US and the EU. However, the report admits that is an extremely unlikely scenario, given that the present trade negotiations between the US and the EU (the Trans-Atlantic Trade and Investment Partnership) are not supported by President Donald Trump and are “in a hiatus”. Charles Ries, VP of Rand and the study’s lead author commented “The analysis clearly shows that the UK will be economically worse-off outside of the EU under most trade scenarios – the key question for the UK is how much worse-off”.

The Kiwi (NZD) strengthened as the markets reacted positively to the appointment of Adrian Orr as the Next Reserve Bank of New Zealand Governor starting on March 27th, 2018. Mr. Orr is currently the Superannuation Fund chief and was a former RBNZ Deputy Governor and Chief Economist. NZDUSD is 0.25% higher in early Tuesday trading at around 0.6925.

EUR/USD is little changed overnight, currently trading around 1.1770.

USD/JPY is unchanged in early session trading at around 113.50.

GBP/USD is near to Tuesday lows, currently trading around 1.3338.

Gold is 0.17% higher in early Tuesday trading at around $1,244.25.

WTI is 0.45% higher overnight to trade around $58.33. With a major Brent pipeline “off-line” for major repairs, Brent’s rise has caused WTI to also move higher.

Major data releases for today:

At 09:30 GMT: The UK Office of National Statistics (ONS) will release a plethora of data sets. The major focus will be on the annualized Consumer Price Index (CPI) for November. The previous annualized CPI reading of 3% is well above the Bank of England’s target rate of 2% and the forecast for November is expected to come in slightly higher at 3.1%. Annualized Core CPI is forecast to come in at 2.8%, slightly higher than the previous release of 2.7%. Month-on-Month CPI is forecast to come in at 0.2% from the previous 0.1%. Whilst CPI remains above the BoE target level, there is no expectation that there will be any further hikes in interest rates until Q2 of 2018 at the earliest. The ONS will also be releasing Core PPI & PPI Input and Output (MoM & YoY) for November. Any significant deviation from expectations will see GBP volatility.

Annualized CPI is forecast at 3.1%.

At 19:00 GMT: The US Financial Management Service will release its Monthly Budget Statement for November. The report summarizes the financial activities of federal entities, disbursing officers, and Federal Reserve banks.

At 19:00 GMT the US Financial Management Service will release its Monthly Budget Statement.

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