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Europe to open higher ahead of UK inflation data

US markets continued where they left off on Friday closing at new record highs helped by gains in tech and energy stocks, as Brent crude oil prices hit another 30 month high at $65 a barrel, after it was reported that the Forties oil field in the North Sea was being shut down due to an oil leak.

These new records are expected to translate into a positive European open this morning, probably led by energy stocks and ahead of a deluge of key central bank announcements in the coming days. The US dollar has continued its recent positive run as this week’s US Federal Reserve two day rate meeting gets under way and ahead of tomorrow’s anticipated 0.25% US rate rise, which will be the third one this year.

Having apparently put stage one of the Brexit talks into the rear view mirror with last week’s agreement, attention now returns to the latest economic data after the latest November PMI’s appeared to show a UK economy that while lagging behind its European peers still appears to be growing at a fairly decent rate.

It’s also important to remember that the UK growth story is slightly more mature than the rest of Europe’s, having been posting fairly strong economic numbers since May 2013, unlike France for example which has only started to outperform the UK this year.

Last month the Bank of England pulled the trigger on the first interest rate rise since the financial crisis, reversing last year’s emergency rate cut over concerns about rising inflationary pressure.

In October, Bank of England governor Mark Carney managed to dodge a bullet and not have to pen a letter to the Chancellor of the Exchequer to explain why the central bank had missed its inflation target by more than 1%, as headline CPI came in unchanged at 3%.

Today’s November CPI numbers are expected to come in unchanged at 3%, in line with the Bank’s inflation forecasts, but it wouldn’t surprise if we did pop our heads up above 3%, prompting the Governor to have to put pen to paper. November has seen a significant rise in crude oil prices which in turn has seen petrol prices rise at the pump.

Core prices are also expected to remain unchanged at 2.7%, which if confirmed would increase expectations that the worst is over for headline inflation.

The jury continues to remain out on this expectation given last week’s PMI numbers which showed that firms hiked prices at their fastest rate since 2008, and this could also be reflected in the latest PPI input numbers, which are expected to show an increase to 6.7% from 4.6% .

The latest estimates for UK RPI retail prices, are for an increase to 4.1% from 4%, which would be unwelcome news for hard pressed consumers as well as the Bank of England for when they meet later this week for the final time this year.

Inflation in the US is slightly more benign for the moment, last week’s wages data from the Friday November payrolls numbers did show an increase from the October numbers, but it was lower than expected, coming in at 2.5% reflecting a slightly weaker inflationary environment.

This expected to be borne out by today’s November PPI numbers which are expected to remain steady at 2.4%.

EURUSD – found support last week at the 1.1730 level before rebounding and remains stuck in a broader range between 1.1500 and 1.2000. We have resistance near the 1.1910 area, while a break below 1.1700 retargets the November lows at 1.1570.

GBPUSD – another failure above the 1.3500 area has seen the pound drift back towards the support at the 1.3320 area. A break below here could well signal further losses towards trend line support from the lows in March which comes in around the 1.3240 area. While above here the uptrend and prospect for further gains towards 1.3660 remains intact.

EURGBP – made a marginal new low at 0.8689 before rebounding strongly back above the 0.8740 area. This could well see a revisit of the 50 day MA at 0.8880. A move through the 0.8880 level retargets the 0.8980 area.

USDJPY – having moved up through the 113.20 area we could now see a return to the recent highs just above the 114.00 level. A move back below 113.20 would negate this and argue for a return towards 112.50 and then the 111.60 area.

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