EMU Inflation Data Likely Ups the Aggression Factor in ECB Action

The anticipation is nearly over.  The actual softer than expected original EMU inflation figures encourages expectations for the more aggressive selection of actions by the ECB tomorrow.  Draghi has claimed that movement toward the actual inflation target was too slow.  Today's data showed a 0.1% increase year-over-year in the heading rate.  The market had predicted a 0.2% increase.  Even though the ECB targets headline inflation, it clearly also tracks core inflation.  Core price raises slowed to 0.9% through 1.1%.

The anticipation is almost in the US as well.  The November employment report is the last hurdle to a mid-December Fed backpack. Although the ADP estimate has a few tracking error with the BLS estimation, and there have been some significant divergence in some months, an as expected increase of 190k jobs might strengthen expectations that slack in the labor market continues to be absorbed. 

The market has largely shrugged away yesterday's dismal US production ISM.  The 48.6 reading was the first below the 50 boom/bust level since late 2012 and was the lowest since ’09.  It was so poor that it offset the somewhat larger than expected increase in construction spending (One.0% vs 0.6%), and prompted the Atlanta Fed's GDPNow to cut its Q4 growth tracker to at least one.4% from 1.8%.

On the other hand, US November auto sales were the third month over 18 mln unit annual pace.  Barring a major disappointment in December 2015 is set to be a record year of sales, edging out the previous peak in Two thousand at 17.4 mln vehicles.  Americans bought roughly a million more vehicles this year over 2014.  Yet most think the news is to be too good to end up being sustainable, and they are building a few slowing into next year’s forecasts. 

Sterling had been resilient in the face of yesterday's disappointing UK production PMI.  However, this seemed to be more a reflection of the common corrective pressure on the US dollar.  Sterling is heavier today following the disappointing construction PMI, even though it is a smaller part of the economy than manufacturing.  The construction May fell to 55.Three from 58.8.  The marketplace anticipated a smaller pullback.  It is the poorest report since April.  The services PMI reports tomorrow.

The euro upticks ran out of steam near $1.0640 and with the disappointing inflation report was sold-off back below $1.06.  Large option positions at both $1.06 and $1.05 end today, the day before the ECB meeting.  Initially the $1.0560 area should offer support.  The recent design has been for some profit taking to follow new euro lows. 

Yesterday's high for sterling near $1.5125 seems like a long time ago.  It exchanged nearly a cent lower following the disappointing construction PMI.  Moving above $1.5080 would stabilize the actual technical tone and avoid a test on the recent reduced just below $1.50. 

The yen is actually unflappable.  The dollar remains within the range set on Monday approximately JPY122.60 to JPY123.35.  Stronger US bond yields and an uptick in the S&P 500 may keep the dollar firm from the yen.

The Australian dollar remains the market's favorite.  It is the only major currency to have acquired against the greenback over the past month (~2.5%).  A little more than half of that came this week (~1.4%).  The RBA'utes recognition of improvement within the non-mining part of the economy aided this, and some improving data, such as Q3 GDP (0.9% vs Zero.8% consensus), rising exports, and building approvals.  We continue to view the upticks as corrective in nature.  It’s approached technical resistance close to $0.7350.  A break of this area, that seems unlikely today, blocking a disappointing ADP estimate in america, could spur a move towards $0.7400 were stronger offers are believed to lay.

In addition to the ADP estimate, the North American morning additionally features the Bank of North america meeting.  The large (0.5%) shrinkage in the September GDP offset the fact that Canada snapped the two-quarter contraction in Q3.  The exploration, drilling quarrying sector contracted Five.1% in September, suggesting which Canada is still struggling with the commodity shock.  The unpredicted US crude oil inventory develop (API 1.6 mln barrel increase) weighed down the Canadian buck.  If there is a risk with the Financial institution of Canada, we suspect it may be on the dovish side, although not rate cut, of course.  Canada, like the US reviews November jobs data on Friday.  It expects in order to report a net loss of work.  The US dollar is poised to make new multi-year highs from the Canadian dollar in the future.

There are several Federal Reserve officials talking today, but the key is Yellen’s speech shortly after midday in the Washington DC Economic Club.  Expect her to stick to the piece of software, which means a reiteration of the Oct FOMC statement.  Still the market is going to be sensitive to any deviation.  Late the Beige Book when preparing for the mid-month FOMC meeting will report.  It typically is not a market mover.

The Wait is Nearly Over, and the Dollar Catches a Bid is republished with permission through Marc to Market