The Bank of England is expected to become the second major central bank after the Fed to raise rates since the financial crisis. By contrast, the European Central Bank said last week it was prepared to loosen policy further in the euro zone, Britain's biggest trading partner.Attention will now be on the BoE's Quarterly Inflation Report, which will be released on "Super Thursday" along with a rate decision and the minutes from the latest monetary policy committee (MPC) meeting. The BoE has said it does not need to wait for the Fed before it raises rates. But many investors remain sceptical over whether they would move first.The UK economies grow slower in the third quarter of the year being weighed down by the performance of the construction and manufacturing sectors. Gross domestic product grew by 0.5% between July and September down from 0.7% in the second quarter. The rate was also lower than the 0.6% growth predicted by analysts. Part of the slowdown was due to the biggest fall in construction output in three years, a drop of 2.2%. This drop in output could have been influenced by particularly wet weather in August. The service sector, the biggest part of the economy, grew by 0.7%. However, output in the manufacturing sector declined by 0.3%. Furthermore, Chancellor George Osborne said there were more "tough decisions" to come and that his Autumn Statement, due on 25 November, would include "long-term investments for the future". Consumer sentiment in Germany has once again dropped this month with the consumer climate falling slightly for the third time in a row and at the lowest level since February. Following a value of 9.6 points in October, the overall indicator is forecasting 9.4 points for November. Like last month, economic expectations are decreasing significantly with the refugee crisis a major concern. Although the data was poor the EUR saw some strength in early trading, the move was attributed to usual month end flows which are typically supportive for the EUR. The leading economic think-tank IFO said in its closely-watched business confidence survey that concerns about slowing growth in China, the Volkswagen pollution-cheating scam and the massive influx of mostly Syrian refugees in Europe had dented optimism only slightly this month. In other news, France believes the European Central Bank's monetary policy is appropriate and could only be loosened further with difficulty, Finance Minister Michel Sapin said on Monday. ECB President Mario Draghi struck a dovish tone after the central bank met last week, interpreted by many as a strong signal it will expand the 60 billion euros-a-month asset-buying programme it launched in March to boost growth and inflation in the euro zone, or extend it beyond next September. The single currency continued to struggle a day after ECB chief Mario Draghi told a news conference that the central bank was "open to the full menu of monetary policy". The ECB comments had gone further than the market had expected by signalling that a deposit rate cut was possible, in addition to an extension of the quantitative easing program.
However there was a set of stronger-than-expected data releases from the Eurozone early on Friday morning, including French services PMI, German services PMI and Eurozone manufacturing, services and composite PMI data, but none of which could abate the relentless pace of the euro’s slide following the much more influential ECB announcement.
The US growth figure disappointed the markets as it came in below forecast rising 1.5% in the last three months. The decline from 3.9% was due to companies clearing out inventory (stock etc.) which showed its biggest swing since 2011. Had it not been for the inventory impact the world’s largest economy would have grown 3 percent which would have been viewed as an extremely good figure. A positive spin was put on the figure as the government’s tally of gross domestic product showed buoyant consumer and business spending.Household purchases, buoyed by job and income gains, will probably remain a mainstay of the economy even as weaker sales to overseas customers hold back exports and manufacturing. The quick re-balancing of stockpiles, which brings them more in line with demand heading into the holiday season, indicates factory production will soon stabilize, eliminating a source of weakness. Interest rates remained unchanged. The Fed said economic activity has been expanding at a moderate pace and it will continue to monitor markets. Most notably it did not repeat warnings from last month that global headwinds could impact on the US economy, leading many to suggest that a rate rise in December could still be on the cards. They also maintained their stance that they would like to see further improvements in the labour market and that they can be confident inflation will move back to its 2% target over the medium term.
However there was a set of stronger-than-expected data releases from the Eurozone early on Friday morning, including French services PMI, German services PMI and Eurozone manufacturing, services and composite PMI data, but none of which could abate the relentless pace of the euro’s slide following the much more influential ECB announcement.
The US growth figure disappointed the markets as it came in below forecast rising 1.5% in the last three months. The decline from 3.9% was due to companies clearing out inventory (stock etc.) which showed its biggest swing since 2011. Had it not been for the inventory impact the world’s largest economy would have grown 3 percent which would have been viewed as an extremely good figure. A positive spin was put on the figure as the government’s tally of gross domestic product showed buoyant consumer and business spending.Household purchases, buoyed by job and income gains, will probably remain a mainstay of the economy even as weaker sales to overseas customers hold back exports and manufacturing. The quick re-balancing of stockpiles, which brings them more in line with demand heading into the holiday season, indicates factory production will soon stabilize, eliminating a source of weakness. Interest rates remained unchanged. The Fed said economic activity has been expanding at a moderate pace and it will continue to monitor markets. Most notably it did not repeat warnings from last month that global headwinds could impact on the US economy, leading many to suggest that a rate rise in December could still be on the cards. They also maintained their stance that they would like to see further improvements in the labour market and that they can be confident inflation will move back to its 2% target over the medium term.
U.S. third-quarter economic growth could surprise on the upside after government data on Wednesday showed the goods trade deficit narrowed sharply to a seven-month low in September. Economists had expected gross domestic product to expand at an annual rate of 1.6 percent last quarter. Many however raised their forecasts after the Commerce Department reported that the goods trade deficit fell to $58.6 billion from $67.2 billion in August. Durable goods orders were -0.4% against an expected 0%. In addition, Consumer Confidence came in short - it was forecast at 102.5 but came in at 97.6. Consumers were less positive in their assessment of present-day conditions, in particular the job market, and were moderately less optimistic about the short-term outlook. Despite the decline, consumers still rate current conditions favourably, but they do not anticipate the economy strengthening much in the near-term.The US dollar climbed following the release of the October preliminary Markit US Manufacturing PMI figure. The flash activity reading came in at 54, a higher reading than the 52.9 expected. It was also a five-month high for the series with a marked contrast to some of the other manufacturing reports that have been released recently.There were improvements in both output and new orders volumes during October. The orders component rose to 55.5 from 54.7 for the highest reading in seven months. The employment measure similarly accelerated. Additionally, input costs fell for the second month in a row.
