Big day of a big week
Markets have an action-packed week ahead of them. Three G10 central bank decisions will be published, kicking off with the ECB tomorrow. Thursday is the turn of the Bank of England and on Friday, the BoJ. But it’s not just the smattering of pre-Christmas central bank meetings that should keep traders on their toes. We also receive this week a host of economic data, perhaps most importantly the belated statistics delayed covering the US government shutdown.
We have already noted how the reports to be published this week will contain idiosyncrasies and create significant challenges when trying to shoehorn these data into economic models. This is because the observation periods have either been partially lost or disfigured to create a special government-shutdown edition. Perhaps the most notable amongst such absences will be the lack of an October unemployment rate. Digesting the data published throughout the week will therefore be more challenging and could lead to greater volatility.
Today in particular sees the release of significant US economic data. Today in the US alone we have the ADP employment report, October and November non-farm payrolls, October retail sales, November unemployment and PMI results, as well as other lower salience releases. With the bank of England expected to cut on Thursday to the tune of a 90% probability, open interest in Sterling has become chronically short. There is a possibility therefore of some short covering into Thursday’s decision and any hawkish surprises from the Bank would lead to a possible short squeeze.
Discussion and Analysis by Charles Porter
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