Today see's the end to what has been a truly Gloomy week on many fronts, not even the reduction in VAT to 15% has been enough to pick the mood up.
It is expected that UK data out to day will show further deterioration in the economy. The CBI Distributive Trades Survey for November may show further weakening in Retail Sales, however given that November is in the main, a quiet month compared to the Christmas spending in December, it is a little unfair to read too much into this. However when compared to the same time last year & the scale of the current discounting in stores, this could still point towards further economic weakening. This could be a precursor to a very poor sales season.
In the Eurozone it is anticipated that the November CPI figures could show another monthly fall which could pave the way for the a fall in inflation to 2.1%, thus virtually guaranteeing that next years annual inflation will dip below 2%. With the unemployment rate also set to increase the scene is set for an aggressive rate cut by the ECB next week.
Over in the US, whilst not an official Bank Holiday, there will be little market activity. Today is known as 'Black Friday' which should be busiest shopping day of the year,. However given current deteriorating personal circumstances of the average US consumer the extent to which the tills will ring will be closely monitored &, not surprisingly, is expected to register sales significantly down on previous years.
In the FX markets today we see GBPUSD trading under 1.54, EURUSD 1.2850 & GBPEUR around 1.1950.
This weekend the press will be full of doom & gloom, with the media having had time to digest the finer print of the chunky PBR & reflect over the past weeks events, so for those of a nervous disposition it would be a good opportunity to avoid the trip to the paper shop.
Next week the main focus will be on both the ECB & UK rate decisions on Thursday. We expect a cut from both camps, however the extent of these are expected to differ. Our economists are looking for the EU to cut rates by 0.25% & the BoE to cut by up to 1% in an attempt to bring some stability back to our economy.
It would be easy for UK borrowers to concentrate on the fall in base rate to these levels, however they must be treated with caution as they are not a long term solution by the BoE, they are a measure to get us out of the current environment in the shortest time possible with the least amount of pain. These are not levels that are expected to be maintained & it is the risks to the upside that pose the greatest threat in the medium to long term.