There is currently a 73% chance that the Bank of England could cut interest rates in January. This data is supplied by the OIS and odds have increased from 60% following the alarmingly poor UK retail spending data this morning. The expectation around of a further 25bps rate cut is fully priced into May’s policy meeting.
GBPUSD also fell sharply after making good progress north of the 1.30 level whilst GBP lost half a cent against the Euro. Diving into the data a little further, the ONS noted that food store sales had fallen more than any other data release over the past three years. When you couple this with July as the last positive reading for retail spending habits, it represents the longest stretch of negative growth since records began in 1996. This will apply additional pressure to quarterly GDP expectations, and in turn, became more of a focus point for the new Bank of England Governor. We will be covering more of the Bank of England as we edge towards their first meeting of 2020 on January 30th.
In stark contrast, Chinese data outperformed expectations with Retail Sales growing at 8% and industrial production increasing by 6.9% vs 5.9% expected. Chinese Premier Li Keqiang continues to deliver a message of confidence, and the ability to deal with a number of risks and challenges. China will proceed with tax cuts on a large scale during 2020 and focus investments on education and technology.
Despite GDP data slowing to a pace not seen for 29 years, at 6%, it remains impressive and one to keep an eye on.
Have a great weekend.
Author: Alistair Huston, Private Dealing Manager
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