Jamie Jemmeson
November 19, 2021

Retail Sales and Consumer Confidence Support Sterling

UK retail sales rose for the first time in six months in October according to official figures, suggesting shoppers started their hunt for Christmas gifts early as pressure intensifies on household budgets and concerns surrounding supply continues. Online sales fell to lows not seen since the start of the pandemic, according to the Office for National Statistics (ONS) Data, which will give some comfort to physical stores ahead of their busiest season of the year. Overnight, the Growth from Knowledge’s (GfK) consumer confidence recovered slightly to -14 for November from -17 previously, although consumers were less confident in the outlook for their personal finances, it is worth noting that this was the first rise in three months.

Yesterday was a quiet day in terms of economic data with the GBP Sterling continuing to gain net support from expectations of a December interest rate increase but struggling to break key psychological levels as political tensions remain. Ireland’s Foreign Minister Coveney expressed disappointment over the UK’s stance on the Northern Ireland Protocol.

The market will focus on speeches from central bankers. Market expectations of a December interest rate hike will remain elevated after a higher-than-expected inflation data and buoyant labour market report. Bank of England’s (BoE) Chief Economist Pill is scheduled to speak today, the market will keep a close eye on his views for rate expectation for December and beyond.

Pressure Continues to Build on the Federal Reserve (Fed) to Adjust Policy for Inflation

With both headline and core prices continuing to rise in the US, pressure continues to mount on the Fed to adjust monetary policy accordingly. Whether supply chain pressures mean that inflation is, in fact, transitory, expectations are that the Fed will need to act sooner to avoid higher inflation levels becoming permanent. Core US price inflation rates in November reportedly hit 4.6% on an annualised basis. The position looks slightly better in the UK and Eurozone, with core prices at 2.9% and 1.9% respectively. Expectations that the Fed will need to act sooner have seen the US Dollar appreciate against the Euro and Australian Dollar. Meanwhile, the dollar index has traded above 96.00.

Yesterday, US data releases showed the weekly initial jobless claim figure edged slightly lower to 268k. Meanwhile, the US Philadelphia Fed Manufacturing Index beat consensus forecasts, rising to 39 in November. Fed member Charles Evans reiterated that the Fed could start hiking rates in 2022.

Looking ahead to today, it’s a very light US economic calendar with no significant data release. Markets’ focus will turn to Fed member, Waller who is scheduled to speak this afternoon.

Calls to Halt QE amidst Higher Inflation

The single currency remains weak due to diverging interest rate policy. European Central Bank (ECB) council member Holzmann stated that quantitative easing (QE) has to stop given that high inflation is likely to persist. However, the expectation is that the ECB would maintain a dovish policy stance which would limit underlying Euro support with markets not pricing in an interest rate increase in 2022.

Dominating the headlines was news on renewed efforts to get rising COVID-19 infections under control in Europe took another step as Germany announced plans to restrict many leisure activities for unvaccinated people across the country.

ECB President Lagarde will speak at the start of an ECB conference on recovering from the pandemic. More generally, the conference has a combination of internal and external speakers.

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