21 October Market report – Resilient UK data continues

The ECB left rates unchanged, December’s meeting will be in focus

Resilient UK data continues

US elections pose asymmetric risks to markets

As expected, the ECB made no changes to its monetary policy at yesterday’s Governing Council meeting. Barclays Research believe “…that members have a preference to wait until December, when they will have updated macroeconomic projections…”

Based on remarks by President Draghi, Barclays Research continue to believe “…the ECB will eventually extend the asset purchase programme by 6-9 months, and announce the relaxation of some technical parameters of QE at its December meeting…”

In FX, the US dollar rose to its 7-month high on ECB news. EURUSD whipsawed during Draghi’s speech, rallying to 1.1039 levels (Bloomberg) but retraced sharply

In the UK, consumers were undeterred at the tills in Q3 16 following the EU referendum on 23 June. Retail sales printed flat (0.00pp m/m), beating Barclays Forecast by 0.4pp and resulting in an acceleration of quarterly growth to 1.8% q/q for Q3 16 from 1.1% q/q in Q2 16

Against this backdrop of stronger soft and hard data, Barclays Forecast that “…UK growth will mostly likely average 0.2% q/q in Q3, 0.2pp higher than our previous expectations…”

As a result, Barclays have revised our expectation for a BoE rate cut of 20bps from November this year to February 2017

With the last presidential debate out of the way, there are no more scheduled election events before Election Day on November 8. At this point, it seems that only an unexpected event would be able to materially change public perception regarding the main two candidates, which (based on the polls) has moved decidedly in favor of Clinton in recent weeks

Nonetheless, Barclays Research “…see somewhat asymmetric risks in the run-up given that market pricing of a potential Trump win is already at very low levels, polls have been volatile despite nearing Election Day, and the unfavourable ratings for both candidates and proportion of undecided voters remain high…”

Market pricing barely changed after the final presidential debate. After the last debate, prediction markets are still pricing a 9% probability of Trump securing the presidency, a far cry versus the c.40% that was priced back in mid-September