Today's data releases
 Key levels
13:30US GDP consumption, PCE DataGBP/USD1.30881.3338
15:00US Uni. of Michigan SentimentGBP/EUR1.10711.1300
Market overview

Yesterday morning, the CBI reported that UK retail sales volumes had fallen at the quickest rate since March 2009, with the headline balance dropping to -36% (consensus +14%) from September’s two-year high of +42%. Retailers had expected a much more moderate softening to +23%, while looking ahead to November volumes are anticipated to be broadly unchanged at +3%. October’s decline in UK retail sales were fairly broad-based with volumes falling at department stores, specialist food retailers and furniture & carpet stores. This contrasted with sellers of recreational goods, hardware & DIY and the other “normal goods” who reported that sales had risen year-on-year. Accordingly, the volume of orders placed on suppliers also dropped at the fastest rate since March 2009, with the balance falling to -43% and are expected to fall -11% in the year to November.

Meanwhile, growth in online sales slowed to +45% in the year to October, to a pace just below the long-run average, but is expected to pick up slightly to +50% in the year to November.As we approached midday all attention naturally focussed on the ECB and Mario Draghi. In short, the Governing Council (GC) announced that it envisages extending its QE programme at a slower pace to €30bn per month for 9 months (i.e. until September 2018). Currently the ECB conducts €60bn of QE per month, which will be maintained until the end of this year. In its brief statement the GC reiterated that rates would be likely to remain at present levels ‘well past’ the horizon of asset purchases. Additionally it repeated the line about standing ready to increase its QE operations in terms of its size and/or duration. As universally expected, the GC kept its key policy rates unchanged – the deposit rate stays at -0.40%; the refi rate at 0.00%; and the marginal lending rate at +0.25%.

Mario Draghi then delivered his press conference at 13.30 UK time. Draghi’s statement said little new to begin, but stressed that reinvestment of maturing bonds will continue for extended period after the end of QE. Draghi said the cut in QE reflected “growing confidence in the gradual convergence of inflation rates towards our inflation aim.” Growth in the Eurozone has impressed in 2017 and whilst inflation has started to pick up it remains at 1.5%, below the ECB’s 2% target. The EUR weakened throughout the afternoon with EURUSD falling almost 2 cents from yesterday’s high as the markets digested Draghi’s comments. Ultimately it probably acted on Draghi saying that there won’t be a “sudden end to the buying” and that the shift shouldn’t even be called tapering. It is worth noting also that Eurozone rate hike expectations are for no move until well into 2019 with the central bank again indicating that any more in rates would come ‘well past’ the horizon of the ECB’s asset purchases.

In other news, there was drama in Australia after Deputy Prime Minister Barnaby Joyce was declared ineligible to sit in parliament because he was also a citizen of New Zealand when elected. This blunder has cost the government its one-seat majority. The USD was supported after the US House passed a budget resolution paving the way for the administration to progress its tax reform plans whilst speculation mounted that a hawkish candidate may lead the Federal Reserve after February 2018 - there was a report that Janet Yellen is out of the race. The choice may now be between Jerome Powell and John Taylor. In South Africa the Rand continues to weaken as the ANC prepares to replace President Zuma during the Dec 16-20 conference.

The day ahead

Today the focus shifts across the Atlantic; we have the first estimate of US Q3 GDP out at 13.30, where annualized growth is expected to print at 2.6%. At the same time, we have US Core PCE inflation followed by the (final) University of Michigan consumer sentiment at 15.00.

Thought of the day

The skies above South Africa are often filled with weird and wonderful creatures, from giant vultures to miniature sunbirds. However those looking to the sky this week may have caught a glimpse of something unusual... a Brit in a chair with 100 helium balloons tied to it! Tom Morgan took to the skies near Johannesburg flying 15.5 miles and reaching heights of up to 8,000ft! Much like the British adventurer, GBP/ZAR is soaring, trading at 1 year highs, after the Finance Minister announced this week that growth will fall well short of targets while the threat of further credit downgrades to the South African economy looms large on horizon. If you have exposure to South African Rand, or any emerging market currency, give the Investec dealers a call today.

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