Market Report : 05.12.22

Published: 05/12/2022 By ECAP

Financial markets have given UK PM Rishi Sunak a fairly easy start to his time at No.10 so far but with the ghosts of Liz Truss and Kwasi Kwarteng now fully in the past, Sterling is going to need some positive news if it is to continue its recent rally. With little UK economic data or events during the week to help the Pound then traders will look towards the December 15 Bank of England MPC meeting for the next potential driver. Ultimately, the British Pound still remains undermined by a bleak outlook for the UK economy, and as such, is continuing to move off the back of a weakening US dollar.

European Central Bank President Christine Lagarde is to make two appearances this week before the start of the ECB’s blackout period ahead of its final policy meeting of the year on Dec. 15. Markets are leaning towards a 50-basis point rate increase at the ECB’s upcoming meeting after data last week showed that Eurozone inflation eased far more than expected in November. With inflation running well above its 2% target, the ECB has hiked rates at its fastest pace on record this year and a string of hikes over the coming months is still likely. But some policymakers have recently made the case for slowing the pace of increases after back-to-back 75 basis point moves, arguing that inflation is finally peaking.

It's set to be a quiet week on the economic data front and Federal Reserve policymakers are in their traditional blackout period ahead of their final policy meeting for 2022. Investors will be looking to Friday’s U.S. producer price inflation data for clues about how hawkish the central bank may be after four consecutive jumbo rate hikes to fight decades-high inflation. The U.S. is to release November PPI data on Friday with the headline figure expected to rise 7.2% on a year-over-year basis, slowing slightly after an 8% increase the previous month. Core PPI, which strips out food and energy costs is also expected to cool. Fed Chairman Jerome Powell said last week that it could be time to slow rate hikes, raising hopes that the central bank was closer to the end of its tightening cycle. However, Friday’s Non-Farm Payrolls report showed that hiring remained strong last month while average hourly earnings increased, which consequently muddied the outlook portrayed last week.