Daily Financial Market Outlook

Overview & economic commentary

There will be a lot of central bank chatter today, from the US to Europe and the UK. The debate will centre not on the direction of interest rates moves - that is clearly downward - but more on when the next cuts are going to take place. For the US, ECB and Bank of England, the cuts will take place either at the next scheduled official meetings or before. If it is before, then the chances are that the cuts will be bigger than expected. At present, we look for a 0.5% cut from the Fed to 0.5%, 0.5% from the ECB to 2.75% and 1% from the MPC to 2%. Economic data due to be released during the day will confirm the weak nature of economic growth and subsiding inflation pressure. French consumer spending, for October, and French manufacturing Purchasing Managers Indices (PMI), for November, will fall, possibly quite sharply. France has so far managed to avoid 2 consecutive quarters of negative growth, unlike Germany, but it is still likely to experience this with a fall in the current quarter and in Q1 2009. A fall will probably occur in German manufacturing PMI for November and so in the same data for the eurozone as a whole. This will give scope, and cover, for a cut in ECB official short interest rates in December. Meanwhile, Canadian consumer price inflation is likely to fall back, giving room for official interest rates to be cut there as well before the end of the year. We look for 0.5% reduction in December.

Currency commentary

Asian equities did not follow the shake out in US stocks after Dell reported better than expected results after market close. This should help the FTSE and European indices to bounce today, but does not change the very pessimistic overall earnings backdrop. Together with sub-$50 oil, this should help risk appetite to stabilise somewhat, especially in emerging markets where currencies like the Korean won and Turkish Lira suffered heavy losses this week. European PMI data will help to influence sentiment in the fx majors this morning, with participants set to draw conclusions about the most likely ECB rate decision on December 6th. €/Y bounced off this week's 116.44 low o/n but relief could be temporary if the PMI's spark renewed fears about the duration of the recession across the euro economy. €/£ could target a pullback to 0.8392 support if the PMI's disappoint. £/chf is still under performing €/chf and $/chf in the wake of yesterday's emergency 100bps rate cut by the SNB. £/chf is capped around 1.8255

Major data and events today

• French consumer spending (07:45)
  Sep +0.6% Y-O-Y +1.5%
  Oct (f'cast) -0.5% Y-O-Y +1.1%
  Median -0.5% Range -1.5%:+0.8%
• French manufacturing PMI (08:00) (prel)
  Oct 40.6
  Nov (f'cast) 39.5
  Median 40.0 Range 39.1:41.5
• French services PMI (08:00) (prel)
  Oct 47.5
  Nov (f'cast) 46.5
  Median 47.0 Range 46.0:47.3
• German manufacturing PMI (08:30) (prel)
  Oct 42.9
  Nov (f'cast) 42.0
  Median 42.0 Range 40.0:44.0
• German services PMI (08:30) (prel)
  Oct 48.3
  Nov (f'cast) 47.0
  Median 47.5 Range 46.8:48.5
• EU-15 manufacturing PMI (09:00) (flash)
  Oct 41.1
  Nov (f'cast) 40.0
  Median 40.0 Range 39.0:41.5
• EU-15 services PMI (09:00) (flash)
  Oct 45.8
  Nov (f'cast) 44.0
  Median 45.0 Range 43.0:46.0
• Canada consumer prices (12:00)
  Sep +0.1% Y-O-Y +3.4%
  Oct (f'cast) -0.1% Y-O-Y +3.5%
  Median -0.3% Range -0.7%:-0.1%
• Canada consumer prices, core (12:00)
  Sep +0.4% Y-O-Y +1.7%
  Oct (f'cast) +0.1% Y-O-Y +2.0%
  Median zero Range -0.2%:+0.1%
• ECB member Ewald-Nowotny speaks in Vienna (09:00)
• ECB member Weber speaks in Frankfurt (10:30)
• ECB member Gonzalez-Paramo speaks in Madrid (11:30)
• US Fed member Lacker speaks in Maryland (13:15)
• US Fed member Plosser speaks in Philadelphia (17:15)
• US Fed member Evans speaks in Indianapolis (17:40)
• BoE member Bean speaks in Istanbul (09:45 on Saturday)

Chart of the day: Crude oil fell below $50pb yesterday, and may dropfurther as the world economy slows

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