With two months left until the French election, analysts and political experts find themselves in a quandary: on one hand, political polls show that while National Front’s Marine Le Pen will likely win the first round, she is virtually assured a loss in the runoff round against either Fillon, or more recently Macron, having between 20 and 30% of the vote; on the other, all those same analysts and political experts were dead wrong with their forecasts about both Brexit and Trump, and are desperate to avoid a trifecta as being wrong 3 out of 3 just may be result in losing one’s job.
Meanwhile, markets are taking Le Pen’s rise in the polls in stride, and French spreads over Germany are moving in lockstep with Le Pen’s rising odds. In fact, as noted earlier in the week, French debt is now the riskiest it has been relative to German in four years.
A three-in-one, that’s why its called Super Thursday.
All three come at 1200GMT
Governor Carney’s press conference follows at 1230GMT
1. On interest rates – the Bank is pretty much unanimously expected to keep rates unchanged (0.25%) and the asset purchase target at £435bn (I have seen just one analyst expect the target to lower).
It is worth noting the UK economy is showing better than expected signs:
Growth is stronger than it was expected to be after the yes vote on Brexit. There are plenty of expectations around for slower growth ahead as the impacts of Brexit become clear, but these have not been evident in the official data. I’ll admit to being in ‘you are all doomed, just you wait’ camp, but the evidence so far has been opposite this (i.e. don’t listen to me!). Yesterday I posted the view of the UK’s National Institute of Economic and Social Research – they are pretty much of the same view as me, & they’ve been eating humble pie too: NIESR has progressively revised up its short-term estimates for British economic growth since the referendum, thanks in large part to consumers who kept on spending
Unemployment is falling (at an 11-year low if I recall correctly)
Inflation is ticking higher, and will perhaps overshoot the topside target (2% is the target). BoE Governor Carney is on record as saying the bank will not be overly tolerant of an inflation overshoot.
Despite these better signs the Bank is expected to be remain in ‘wait and see’ mode, watching more data, especially on business activity and consumer spending. In November Governor Carney said the Bank had a neutral policy bias, so I’d expect a clear indication of a shift in the bias before any policy move on rates or QE. This (a shift in policy bias) is something to watch for from the Bank today.
2. The minutes will be scoured for hints of how the Monetary Policy Committee members voted and reasoned, looking for signs for the future direction on rates and QE
3. The Quarterly Inflation Report will be a big key focus. It will include the BoE’s latest forecasts for growth & inflation. The most recent Bank update to these forecasts was way back in November;
A new report from Standard Chartered estimates capital flows out of China totalled almost $730bn in 2016, a near-record level.
Analysts Shuang Ding and Lan Shen estimated outflows had moderated in December to $66bn, down from November’s $75bn.
Beneath the headline figure foreign direct investment flows turned positive for the first time in eight months with a $3bn inflow, while non-FDI outflows remained unchanged from the previous month at $69bn.
The analysts estimated December’s outflows brought the annual total for 2016 to $728bn, close to the previous year’s record high of $744bn.
They also estimated China’s foreign exchange reserves had fallen $41bn last month to end the year at $3.01tn as depreciation of the euro, yen and pound against the greenback. That reduced the dollar value of China’s holdings in those currencies by about $13bn.
India’s foreign exchange reserves declined by $935.2 million to $359.671 billion in the week to December 23 on account of fall in foreign currency assets, the Reserve Bank said on Friday.
In the previous week, the reserves had fallen by $2.380 billion to $360.606 billion.
They had touched a life-time high of $371.99 billion in the week to September 30, 2016.
Foreign currency assets (FCAs), a major component of the overall reserves, dipped by $933.2 million to $335.970 billion in the reporting week.
FCAs, expressed in US dollar terms, include the effects of appreciation/depreciation of non-US currencies such as the euro, pound and the yen held in the reserves.
Gold reserves remained steady at $19.982 billion in the reporting week, the RBI said.
The special drawing rights with the International Monetary Fund decreased by $0.9 million to $1.427 billion, while India’s reserve position with the Fund too declined by $1.1 million to $2.290 billion, the data showed.
The jolly chaps and chapesses at Danske Bank have the euro all mapped out for next year
Danske see EURUSD bottoming at 1.0200 in their 1 month forecast.
“In the short term, on the one hand there will be downward pressure on the US monetary base from the higher federal funds target and from the impact of new banking regulation with US banks set to be required to have an LCR of 100% by 1 January 2017. On the other hand, deposits on the US treasury account may fall at the beginning of next year after a resuspension of the debt ceiling, which will tend to increase the monetary base. Overall, this is likely to be marginally positive for USD and weigh on USD FX forward points vis- à-vis EUR and the Scandinavian currencies on top of the impact of the repricing of the path of Federal Reserve rate hikes, e.g. keeping the 3M EUR/USD basis spread around the present 70-80bp, and thus maintaining a significant negative carry on short USD positions.”
The price of copper has sunk to its lowest level in almost a month after the London Metals Exchange reported the biggest one-day rise in 15-year in inventories of the red metal.
Copper for delivery in three months dropped $116, or 2 per cent, to $5,525 a tonne after the LME said stocks has increased by 38,400 to more than 345,000 tonnes,
Since hitting 213,000 tonnes on December 8th, inventories have surged by 60 per cent as refined copper has moved out of China and into LME licensed warehouses in Asia.
The copper market has been roiled several times this year by large movements of stock.
Some analysts believe the latest movements are driven by cheap freight and storage incentives, which have encouraged Chinese traders to deposit stock in LME warehouses. Others say the stock has been placed there by a large commodity trader as part of a complex trading strategy.
But there are other explanations. In a recent report Standard Chartered flagged a significant build-up in unreported copper stocks outside, which it puts at almost 500,000 tonnes since the end of July.
Former finance minister P Chidambram on Tuesday demanded the Reserve Bank of India should make public minutes of its November 8 meeting whose outcome empowered government to scrap specified notes of Rs 500 and Rs 1,000 denominations.
On November 8, the Narendra Modi government in a televised address announced it was abolishing the legal tender status of Rs 1,000 and Rs 5,00 currency notes.
These high value notes comprised a huge 86 per cent of total currency in circulation and the decision has led to severe cash crunch in country causing inconvenience to the citizens.
“RBI should publish the minutes of meeting on Nov 8, let country know who were the directors who attended the meeting,” Chidambaram demands.
The government had banned these specified notes through an executive order instead of passing a legislation in parliament as part of its drive to curb black money and prevent recurrence of fake currency incidents.
According to the RBI Act, 1934, the Central Board of the apex bank takes a call on legal tender, its validity or invaldity, in circulation in country and proposes government accordingly.
The US dollar rose more than 8.5% against the yen in November, and finally at the end of the month, speculators finally switched to a new short position for the first time this year.
In the CFTC reporting week ending November 28, speculators added 12.1k contracts to their gross short position, lifting it to 72.4k contracts. Speculators added a little less than one thousand contracts to the gross longs, which then stood at 72.1k contracts.
Since peaking in early October near 102k contracts, 30k gross long contracts have been liquidated. Over the same period, almost 40k contracts have been added to the gross short exposure. The result is that the net position is short about three hundred futures contracts. That leaves the Australian dollar as the only currency futures we track in which speculators are still net long. And even there they are back.
During the latest reporting period, speculators liquidated 8.7k long Aussie futures contracts, bringing the position down to 54.8k contracts. About 1.1k contracts were added to the gross short position, so it stood at 33.8k contracts. The net long position fell by a third to 21.0 contracts.
Growing the gross short yen futures was the largest speculative position adjustment, but speculators were also active in euro futures. The bulls added 9k contracts to the gross longs (to 136.1k), while the bears grew the gross short position almost as much (8.9k contracts to 255.3k).
When will be know the results of the constitutional referendum?
Here is the quick answer: The voting takes place on Sunday but the polls don’t close until 11 pm local time (5 pm in New York).
After that, the counting will start.
So it won’t likely be until sometime early Monday morning in Italy that we know which side won. I suspect will start to get an idea around 3 hours after the end of voting but it could be significantly later, especially if it’s close.
What’s important to note is that markets will be open when the results hit and that could create a tremendous amount of volatility. Many forex brokers have cut leverage ahead of the result in anticipation of a big move in the euro.
The second event to watch after the results will be the speech from Italian Prime Minister Matteo Renzi. He has said he will resign if he loses. If that takes place immediately after the vote, it willl add to the uncertainty and weigh on the euro.