UK data will likely highlight the tough job facing Bank of England policy makers. Comments from European Central Bank (ECB) President Mario Draghi and Chief Economist Peter Praet are considered as the ECB plans to withdraw more stimulus. New York Federal Reserve Bank President William C. Dudley and Dallas Federal Bank President and CEO Robert S. Kaplan make appearances as speculation grows around Fed Chair Janet Yellen’s replacement.
European markets are poised to open a little higher on Wednesday, as we await the latest labor market data from the UK and speeches from ECB and Federal Reserve policy makers.
The UK is a key focus for markets this week as traders try to determine whether or not the BoE will follow through on warnings that interest rates could rise at an upcoming meeting. Comments on Tuesday from Governor Mark Carney and two of his new colleagues on the Monetary Policy Committee highlighted how close and tough the decision is, given the unfavorable economic outlook.
The September inflation data likely didn’t have much of an impact either way, with policy makers that were previously on the fence probably still perched up there now. With a hike next month now 76% priced in by markets according to Reuters, traders clearly need little convincing, although I’m not convinced it’s that straightforward.
The labor market figures this morning likely will be closely monitored in the absence of any clear assistance from the CPI data. Once again though, the unemployment data is expected to paint one picture with the rate remaining at 4.3%, while average earnings paints an entirely different one, as wages rise by only 2.1%. Negative earnings growth is one of the factors that is likely to weigh on the economy going forward and makes the BoE’s decision on interest rates all the more difficult.
Speeches from Mario Draghi and Peter Praet also will be closely followed today for hints at how the central bank will manage the process of reducing new asset purchases to zero over the next year or so. The ECB is expected to make an announcement next week, with the consensus reportedly favoring a €30 billion reduction until September, likely followed by a reduction to zero thereafter. Although given the cautious nature of the central bank, that is not something they will likely commit to or possibly even allude to even though the intent will be clear.
The Federal Reserve is never too far away from the spotlight, especially when President Donald Trump is interviewing candidates to succeed Janet Yellen when her term ends in February. The dollar has caught a bid in recent days following reports that Trump was impressed when interviewing John Taylor, who is seen as being more hawkish than Yellen. Who will replace Yellen, assuming her term isn’t extended will likely remain a hot topic and in the meantime, we will hear from a couple of her colleagues, Robert Kaplan and William Dudley, as the central bank prepares to raise rates one more time this year.