Today's data release
 Key levels
09:30UK employment report SupportResistance
EZ industrial productionGBP/ USD1.32201.3520
13:30US inflation dataGBP/ EUR1.11351.1565
19:00Fed rate decision and press conference   
Market overview

Yesterday’s UK inflation figures showed prices in November rising by more than expected to a six-year high of 3.1%. As such, Bank of England Governor Mark Carney will now have to write a letter to Chancellor Philip Hammond explaining why inflation has overshot its 2% target by more than 1%, which will be published alongside the next Inflation Report in February. Transport was the biggest contributor category to the headline rate of inflation. Meanwhile, PPI figures showed that input cost inflation similarly beat expectations by rising 7.3% on the year (consensus +6.3%, Investec +6.7%) from 4.8% in October. While factory gate price inflation was in line with consensus, the sharp rise in input cost prices tentatively indicates that there could be strong inflationary pressures in the pipeline. Sterling strengthened against the USD to 1.3350 in the lead-up to the release and momentum continued after the figures were published to 1.3370.

Moving onto the continuing Brexit rhetoric, the EU chief negotiator Barnier cautioned the UK against going back on the agreements made last Friday, noting “we will not accept any backtracking from the UK”. Furthermore, the EU Parliament lawmaker Guy Verhofstadt tweeted that it was time for the UK government to “restore trust” after the “unacceptable remarks” by Brexit Secretary Davis who noted the Brexit deal last week was more of a “statement of intent”. Nonetheless, the draft European Council guidelines seems to suggest trade talks between UK and EU could formally start in March 2018.

In the US, momentum on the tax plans appears to be going reasonably well. A few House officials noted that the conference panel could deliver the written agreement on the final tax legislations by Friday. Whilst, the House Majority leader McCarthy also noted that the goal is for the House to vote on the reconciled tax bill next Tuesday (19th December), which is also confirmed by Senator Reed of Rhode Island, who noted: “the time frame of a vote next week is very realistic”. 

The day ahead

We have a pretty busy day ahead with US inflation and the long-awaited FOMC meeting, which also includes Yellen’s last press conference. A 25bp rate rise is pretty much nailed on for today’s meeting and therefore the focus is likely to shift onto Yellen’s speech and the Fed’s economic projections, which includes the dot plot (a graph showing where Fed members believe future rates will be). US inflation is an important release to watch out for going forward as it will play a key role in rate decisions in 2018.

Other data releases include the final November inflation revisions in Germany, October employment data in the UK, and October industrial production data for the Euro area. Finally, President Trump may speak on tax reforms today and Germany’s Merkel and SPD will also start formal coalition talks. 

Thought of the day

2017 has certainly been a year to remember. It began with the inauguration of Donald Trump
which came in the midst of an anti-establishment tide that threatened to change the political
landscape on both sides of the Atlantic. The results of the French, Dutch, UK and German
elections that followed certainly threw up some surprises, leaving the leaders of both the UK
and Germany clinging on to power. In between, we’ve also seen the UK formally serve notice
on its membership of the European Union while more recently, the Bank of England raised
interest rates for the first time in a decade! If 2017 was merely the appetiser, we can only
imagine what lies in store for 2018. To help lift the cloud, we created a podcast of a conference call with our chief economist to discuss what themes are likely to dominate next year, to hear what was said, visit the link below.

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