Quiet day on Thanksgiving
With US markets closed for Thanksgiving, markets took a breather and it was a quiet day overall. There was little data or news to move the needle for the major currencies. The euro was little changed – touching off $1.16 at times briefly – and remains at around $1.1580 currently. Similarly, the euro is little changed overall against sterling and remains at around 87.6p this morning. To the dollar, sterling is trading at around $1.3220.
In Government bond markets it was also quiet. UK 10-year yields had dipped on Wednesday following the UK Budget so they backtracked at little, up 3bps to be 4.45% but there was little change in other European bonds with French, German and Italian 10-year yields up very marginally, by about a basis point apiece. With US equities markets closed, and little news, European equities traded sideways with no pressure one way or the other. This left the Eurostoxx and FTSE flat on the day.
EU Commission survey data for November showed a growing, if subdued, economy. The Economic Sentiment Indictor rose marginally this month to 97.0 from 96.8 last month. This is the highest the index has been since April 2023, but the index still remains below its long term average. Growth is uneven though, with confidence in the industrial sector falling last month, to -9.3 from -8.2, amid continued export competitiveness challenges while consumer confidence remains weak at -14.2. On the other hand, services confidence rose to its highest level in a year , to 5.7, suggesting it will drive any growth in the Euro Area economy in Q4.
The minutes of the last ECB meeting showed members were confident that the current level of monetary policy is suitable. The report said that the view was expressed that rate cutting had come to an end given the current favourable outlook while another view expressed was that it was important to remain ‘entirely open-minded on the possible need for a further rate cut’ should downside risks intensify or if a projected undershooting of inflation became sustained. It was noted that there was dangers to inflation in both directions but members felt that ‘maintaining policy rates at their current level would allow for more information to become available to assess the risk’ and also that the current level was ‘sufficiently robust for managing shocks’. Markets are currently pricing in no change in ECB policy through all of 2026.
Bank of England MPC member Megan Greene said the committee should ‘look through’ any impact from the Budget that might reduce inflation. She said that there was ‘an argument to look through one-off inflationary implications from the Budget’. The changes may, she said, reduce inflation expectations but she was ‘not convinced it will do that’. Greene, who was one of the five to vote to maintain the Bank Rate at the last meeting is one of the more hawkish members of the MPC. In late 2023 she was in the minority voting to hike rates and currently is voting to hold when monetary easing is very much on the table. She remains very cautious about cutting rates further as she sees ‘green shoots’ in the labour market and that evidence on moderating wage growth and services inflation is encouraging and, given this evidence, she thinks ‘most policy rules suggest keeping rates steady’. The markets think Greene will be in an a minority if she continues to vote to hold as a 90% chance of 25bps rate cut at the December 18th MPC meeting is now priced in.
On the agenda today we get ECB CPI expectations and November provisional CPI data for Germany while Nagel of the ECB is due to speak.