US and European futures are trading flat as traders are wary ahead of the Fed Chairman’s speech later today. His comments on the Fed’s monetary policy will be very important for the market players as the Fed’s view pushed the markets off their lows. The fact the US CPI data has started to ease off from its recent high is a positive sign, and traders would like to see a further echo of this in Powell’s speech today.
Removing Ring fence
Over in the UK, the government intends to ease restrictions on the ring-fencing of banks. This comes at a time when London is losing its credibility as a hub of financial innovation, and interest rates have soared to record levels. The attempt is to deregulate the City of London and achieve something meaningful for the UK. Banking firms are currently required to partition their retail banking services from their investment and foreign banking endeavours to comply with ring-fencing regulations. This particular regulatory act was established chiefly due to the financial crisis and to save the banking system, which the government now wants to undo. The idea is to encourage banks to take more risks but still in a manageable way and not repeat the mistakes of the 2007 financial crisis.
According to two different studies, the confidence level held by UK firms has decreased, which reflects a darker economic picture characterised by recession and persistent inflation. The service sector’s confidence has declined for the third consecutive quarter, with the business and professional services sector seeing the most dramatic dip. According to economic data, sentiment dropped to 10% in November, down from 15% in October. This is the lowest level it has been since February 2021.
Euro Area’s CPI
The November inflation number for the eurozone will be the final price data European Central Bank policymakers receive before considering the last interest rate rise of 2022. Traders anticipate a decline in the headline inflation number, expecting a more consistent weakness in the core inflation. The hope is that a weakness in the CPI reading will prompt the European Central Bank (ECB) to start lower the pace of rate rises to 50 basis points, down from the 75 basis point increase that took place over the course of the last two meetings.
Nonetheless, it is certainly not that easy or a textbook trade as there are always more hawkish members of the Governing Council, such as Isabelle Schnabel, a member of the Executive Board. These members are more than likely to express their doubts over slower hikes and if they are warranted. If the data shows any upside, surprise that would add to the case for another massive hike when the policy decision is announced on December 15.
This falls short of the general opinion, which anticipated a minor dip, to 10.4%. In keeping with the general view, we expect that core inflation will continue at an all-time high of 5% in November.
Since the prices of road fuel have been going down monthly in most nations and Spain’s power bills have decreased considerably, a significant reduction in energy contributions to headline inflation will drive the November inflation rate. We also predict a decrease in the Netherlands’s already highly volatile energy costs; however, the most significant reduction from the price limit may only occur in January if it is postponed until then.
After mass protests against stringent limitations, China changed its method for dealing with Covid-19, which led to an increase in the price of oil. At the same time, investors looked forward to an OPEC+ meeting, which may result in a supply reduction to offset market weakness. The price of WTI rose beyond $79 per barrel, erasing an earlier decline. Beijing has announced that it would increase the number of older citizens who get vaccinations, a measure that health experts see as essential in reopening the economy. As a result of the upheaval that occurred over the weekend in the world’s leading crude importer, prices were all over the place on Monday.
The recent weakening in the market might justify a production reduction from OPEC and its allies at their meeting on Sunday. Still, the organisation may yet opt to maintain output constant. The remaining options to the cartel are to watch what happens when EU sanctions begin to take effect on December 5 or try to stem any selloff in prices.
The Organization of the Petroleum Exporting Countries (OPEC) and its partners might decide to reduce production by an additional 2 million barrels at their meeting on December 4. An ongoing economic slowdown is holding prices down, and the market indicates plenty of oil. Since benchmarks have been falling, it appears highly probable that OPEC+ will slash production objectives again as it seeks to maintain oil prices.