GDP growth in the UK was exactly as forecast at 3%, and the same as the year on year comparison at the end of the last quarter. That’s decent I say. And this morning those solid numbers have been followed by better than forecast growth in Spain with the year on year comparison to Q3 now at 1.6%, the expected improvement from the prior periods 1.3% gain. There might be some concern at the accelerating falls in prices highlighted by the -0.4% inflation release which was more than had been forecast, and a lot more than the -0.1% shown at the prior period. I’ve said it before, and I’ll say it again.. I don’t see what’s wrong with falling prices. Yes there are specific circumstances where it might be a cause for concern, but I’m not even sure if the situation is ever properly assessed on its merits these days. This will be further ammunition for Mr Draghi as he seeks to expand the ECB’s balance sheet with further asset purchases. A little later on this morning we will get employment data from Germany and Italy, sentiment data for the Eurozone, and perhaps most important of all the Bundesbank President will speak just after noon. It’s no secret that there is a difference of opinion between German monetary authorities and Mr Draghi, it should be interesting to hear what Mr Weidmann has to say. No data out of the US, as today is Thanksgiving Day. Markets should be relatively subdued as the big boys across the pond dig into their turkey.
The oil price continues to fall, with Brent priced for January delivery below $77. The squeeze on those resource rich markets will continue as Saudi Arabia and its neighbours appear reluctant to cut back on production. We’ll know more later today as an OPEC meeting in Vienna will provide further insight into the thinking of the cartel. When I started in the markets years ago, OPEC meetings were market moving events. I can’t honestly say I recall the last time I even noticed when OPEC was meeting! I question whether they are even the key marginal producer anymore. Shale gas and fracking in the US have done tremendous damage to the pricing power of the cartel, and we will start to understand more about the global implications in the months and years to come. I suspect there are consequences we haven’t even considered yet, not least middle east peace prospects, but it is what it is. For most of us, lower energy prices are unquestionably a good thing, and I remain very positive about the boost to consumption we should expect over the next half year. If there is one negative, it’s the opportunity that will be given to major central banks to further delay rate normalisation. Interest rates MUST start to go up in economies that are recovering robustly in my view. In both the United States and the UK there is a strong case to allow the market to clear on its own terms, and end this prolonged period of financial repression. The longer it’s delayed the more painful the endgame will be. The way I see it, there are businesses and individuals who are borrowing at favourable rates that would not be making such decisions if interest rates were at proper levels. This is not a good thing. How will they cope when rates normalise? The world has gone bonkers in my view and the sooner central banks stop behaving like ostriches the better all our lives will be!
The dollar remains in consolidation mode, which is not a bad thing in my view. A good rest as the market absorbs the moves over the last few months is just what is needed for a healthy trend to be sustainable. One could argue that both EUR/USD and GBP/USD are approaching levels where the bearish trend can reassert itself, however I have questions about USD/JPY. I think this pair is quite extended and I wouldn’t be shocked to see a move down to 116, perhaps even 115 before any real recovery gains strength. Japanese CPI data tonight could elicit moves in one direction or another, so that could be an interesting risk event. In developing markets USD/MXN continues to trend higher, but we’re approaching multiple resistance zones. There was a time when the Mexican peso was more influenced by US equities than oil, but those times are past apparently. Still a cheaper more competitive currency and robust growth being experienced by its northern neighbour are just some of the reasons I remain bullish about economic prospects in Mexico over the next few years. The period of respite for the Russian rouble also appears to be over, it’s already weaker by about 0.7% this morning. No doubt another victim of happenings in the oil markets. We’ll continue to monitor events for you, and we will tweet (@parityfxplc) during the day if there is something we consider particularly noteworthy.