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Our Monetary Policy Committee has voted unanimously to maintain Bank Rate at 0.50%. The committee also voted unanimously to maintain the stock of corporate bond purchases and UK government bond purchases.

The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 13 December 2017, the MPC voted unanimously to maintain Bank Rate at 0.5%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

In the MPC's most recent economic projections, set out in the November Inflation Report, GDP grew modestly over the next few years, at a pace just above its reduced rate of potential. Consumption growth remained sluggish in the near term before rising, in line with household incomes. Net trade was bolstered by the strong global expansion and the past depreciation of sterling. Business investment, while affected by uncertainties around Brexit, was projected to continue to grow at a modest pace, supported by strong global demand, high rates of profitability, the low cost of capital and limited spare capacity.

Unemployment was expected to remain low throughout the three-year forecast period, and domestic inflationary pressures were projected to pick up gradually as remaining spare capacity was absorbed and wage growth recovered. Nevertheless, reflecting the diminishing effect of sterling's depreciation, CPI inflation was forecast to decline from around 3% to approach the 2% target by the end of the three-year forecast period.

The recent news in the macroeconomic data has been mixed and relatively limited. Global growth has remained strong. Domestically, some activity indicators suggest GDP growth in Q4 might be slightly softer than in Q3. The measures announced in the Autumn Budget will lessen the drag on aggregate demand stemming from fiscal consolidation, relative to previous plans. The labour market remains tight, and surveys suggest this will continue. Although it is too early to arrive at a comprehensive view of the effect of November's rise in Bank Rate on the economy, the impact on interest rates faced by households and firms has been consistent with previous experience.

CPI inflation was 3.1% in November. It remains the case that inflation has been pushed above the target by the boost to import prices that resulted from the past depreciation of sterling. The MPC judges that inflation is likely to be close to its peak, and will decline towards the 2% target in the medium term. In line with the procedure set out in the MPC's remit, the Governor will be writing an open letter to the Chancellor of the Exchequer, accounting for the overshoot relative to the target and explaining the MPC's policy strategy to return inflation sustainably to the target. This letter will be published alongside the minutes of the February 2018 MPC meeting and the accompanying Inflation Report.

Developments regarding the United Kingdom's withdrawal from the European Union – and in particular the reaction of households, businesses and asset prices to them – remain the most significant influence on, and source of uncertainty about, the economic outlook. The Committee noted the progress in the Article 50 negotiations between the United Kingdom and the European Union. In such exceptional circumstances, the MPC's remit specifies that the Committee must balance any trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity.

The steady erosion of slack over the past year or so has reduced the degree to which it is appropriate for the MPC to accommodate an extended period of inflation above the target. Consequently, at its previous meeting, the MPC judged it appropriate to tighten modestly the stance of monetary policy in order to return inflation sustainably to the target, while continuing to provide significant support to jobs and activity. At this meeting, the Committee voted unanimously to maintain the current monetary stance. The Committee remains of the view that, were the economy to follow the path expected in the November Inflation Report, further modest increases in Bank Rate would be warranted over the next few years, in order to return inflation sustainably to the target. Any future increases in Bank Rate are expected to be at a gradual pace and to a limited extent. The Committee will monitor closely the incoming evidence on the evolving economic outlook, including the impact of last month's increase in Bank Rate, and stands ready to respond to developments as they unfold to ensure a sustainable return of inflation to the 2% target.

Thursday December 14: Five things the markets are talking about

Global equities continue to drift as investors await the outcome of the last ECB meeting of the year (07:45 am EDT). Ahead of the U.S open, the ‘mighty' dollar has temporary halted its decline sparked by the Fed's unchanged outlook yesterday for rate increases in 2018.

Note: The Swiss National Bank (SNB) and Norges bank left rates unchanged as expected (see below), however, Norway seems to have brought forward its first planned rate hike. Turkey's central bank said it will keep monetary policy tight until the inflation outlook displays a significant improvement and becomes consistent with targets – it raised its late liquidity window rate by +50 bps.

On Wednesday, the Fed raised interest rates another +25 bps and is expected to make three more such moves next year. In her final press conference at the helm, Chair Janet Yellen made it clear there is little to be concerned about in the U.S economy. Growth is strong, hiring is robust and there are no dangerous bubbles on the horizon.

Most Fed officials now expect some boost to economic growth from the tax package now working its way through Congress. Coming tax cuts likely would raise consumer and business spending, providing “some modest lift” to economic growth in coming years.

U.S officials expect unemployment to fall to +3.9% by the end of next year, down from their earlier estimate of +4.1%. And yet, despite those signs of a stronger economy, officials see no more inflation than they anticipated in September and no cause to raise interest rates more aggressively than they expected three-months ago.

Now it's on to the ECB and BoE rate announcements this morning. Both central banks announced significant policy changes after their last meetings and the market now expect them to stand pat while officials assess developments. Investors should be looking President Draghi's comments in his press conference (08:30 am EDT) for more clues about plans to start weaning investors off its monthly bond purchases next year.

1. Stocks struggle after new records

In Japan overnight, the Nikkei share average slipped as banks and insurer shares weakened in line with lower interest rates. The Nikkei ended down -0.3%, while the broader Topix was -0.2% lower.
Down-under, Aussie shares fell on Thursday and broke a five-session run of gains, with financials and real estate stocks accounting for most of the losses. The S&P/ASX 200 index declined -0.2%. In S. Korea the Kospi closed out its session little changed.

In Hong Kong, equities were also little changed, as investors gave muted reaction to the Fed's widely expected U.S rate hike. At close of trade, the Hang Seng index was down -0.19%, while the Hang Seng China Enterprises index rose +0.1%.

In China, stocks fell on Thursday, after the PBoC nudged up money market rate (see below) following the Fed's rate hike. At the close, the Shanghai Composite index was down -0.29%, while the blue-chip CSI300 index was down -0.57%.

Note: China's central bank lifted money market rates as authorities sought to defuse financial risks without imperilling the economy.

In Europe, regional indices trade mixed this morning with the DAX, CAC and the FTSE trading lower with Spanish and Italian markets trading slightly higher.

U.S stocks are set to open in the ‘black' (+0.1%).

Indices: Stoxx600 -0.1% at at 390.1, FTSE -0.2% at 7482, DAX -0.3% at 13088, CAC-40 -0.2% at 5388, IBEX-35 +0.1% at 10270, FTSE MIB +0.2% at 22442, SMI -0.1% at 9384, S&P 500 Futures +0.1%

2. Rising U.S output threatens global oil market balance, gold higher

Oil prices remain better bid ahead of the U.S open as industry data this week revealed a larger-than-expected drawdown in U.S crude stockpiles. Also aiding prices is the markets expectation for an extended shutdown of a major North Sea crude pipeline.

Brent crude is up +19c, or +0.4% at +$64.03 a barrel, while U.S light crude (WTI) is up +15c, or +0.2%.
U.S API data on Tuesday indicated that domestic crude stocks fell by -7.4m barrels last week. That is almost twice the decline of market expectations for a drop of -3.8m barrels.

Also providing support is the news that Britain's biggest pipeline from its North Sea oil and gas fields is likely to be shut for several weeks for repairs.

Nevertheless, prices are expected to be capped in the medium term as a report from the IEA this morning stating that the global oil market will likely show a surplus in H1 of 2018, as rising U.S. supply offsets OPEC's discipline in maintaining its production cuts for the whole of next year

Gold prices hit it's highest print in a week overnight, as the dollar remains somewhat on the defensive after tumbling in the previous session following the Fed's decision on interest rates. Spot gold is up +0.1% at +$1,256.40 an ounce, after earlier touching its highest since Dec. 7 at $1,259.11 in the Euro session.

3. Central banks monetary policy decision

This morning's Swiss National Bank (SNB) rate decision was as expected with the deposit rate unchanged at -0.75% and the SNB saying it is still willing to intervene in currency markets if the franc gets too strong. Officials also stuck with their assessment that the franc remains “highly valued” and that it's too early to talk about ‘normalization' of Swiss monetary policy.

In Norway, government bonds remain stable after the Norges Bank (central bank) left its key rate unchanged at +0.50%, in line with expectations. The two-year government bond trades at a yield of +0.45%, while the 10-year bond trades at a yield of +1.49%. Officials say there is a continued need for expansionary monetary policy.

In China, the People's Bank of China (PBoC) overnight raised two key short-term interest rates in tandem with the Fed's hike. Officials raised the rates it charges commercial banks on seven-day and 28-day loans by +5 bps each. It also raised rates for a medium-term liquidity instrument. The increases were smaller than 0.10 percentage-point moves in the first quarter, and the bank left the benchmark policy rates unchanged.

Note: This surprise move suggests that China's policy makers are trying to strike a balance between easing pressure on the yuan and reducing capital flight on one hand, and managing higher borrowing costs on the other.

4. Dollar under pressure from Fed hike

Heading into the U.S session, the USD (£1.3442, €1.1830 and ¥112.74) continues to maintain its softer tone in the aftermath of the yesterday's FOMC rate decision, which is viewed as a “dovish” Fed hike.

The greenback has softened as the Fed ‘dots' basically stuck to its rate projections. It would suggest that dealers and investors alike want to keep challenging the Fed's ability and willingness to get inflation to +2%.

Elsewhere, the CHF (€1.1686) has fallen slightly after the SNB left interest rates on hold this morning, as expected, while it says the currency remains “highly valued” despite its recent depreciation. Officials indicated that while the CHF's “overvaluation” has continued to decrease, “the negative interest rate and the SNB's willingness to intervene in the FX market as necessary remain essential.”

The NOK (€9.7401) has rallied more than +1% after the Norges Bank kept interest rates steady, but says “changes in the outlook and the balance of risks imply a somewhat ‘earlier' increase in the key policy rate than projected.”

The Turkish lira falls sharply after the Central Bank of the Republic of Turkey raised the late liquidity window lending rate by just +50 bps to +12.75% from +12.25%, at the lower end of markets expectations. Many had expected an increase of +100 bps. USD/TRY has jumped +2% on the day to reach a 10-day high of $3.8909.

5. U.K. retail sales accelerate last month on Black Friday deals

Data this morning shows U.K. retail sales accelerated last month as Britons flocked to shops to take advantage of Black Friday discounts.

Sales grew by +1.1% on the month in November, more than twice the pace of growth seen in the previous month, and significantly above the markets estimate of +0.5%m/m.

The figures indicated a pickup in consumer spending in Q4, a welcome sign for the largely domestic-driven economy.

Digging deeper, growth in retail was driven largely by strong sales of electrical household appliances.

Note: The U.K economy has slowed visibly this year, as accelerating inflation, spurred by the pound's (£1.3442) steep depreciation after last year's Brexit vote, squeezed consumer spending.

The euro has paused in the Thursday session, after posting strong gains on Wednesday. Currently, EUR/USD is trading at 1.1824, down 0.01% on the day. In economic news, it’s a busy day in the eurozone and the US. Manufacturing PMIs beat their estimates in France, Germany and the eurozone, with strong readings of 59.3, 63.3, and 60.6 points respectively. On the services side, Services PMIs beat the estimates in Germany and the eurozone, but fell short in France. Later in the day, the ECB is expected to maintain interest rates at a flat 0.00%. In the US, consumer spending indicators are expected to improve in November, with Core Retail Sales and Retail Sales forecast at 0.6% and 0.3%, respectively. On Friday, the eurozone releases trade surplus and the US publishes Empires State Manufacturing Index.

There were no surprises from the Federal Reserve, which raised rates on Wednesday, bringing the benchmark rate to a range between 1.25% and 1.50%. This marked the third rate hike in 2017, testimony to the strong performance of the US economy. The Fed statement was optimistic about the economy, noting that the labor market “remained strong”. It also lowered its unemployment forecast in 2018 from 4.1% to 3.9%, and revised growth for 2018 from 2.1% to 2.5%. Despite this rosy prognosis, the dollar was broadly down after the announcement. Why? One reason is the sore point in the economy – inflation. The Fed has not changed its September forecast for rate hikes next year, with the Fed dot plot indicating that three rate hikes are projected for 2018. This disappointed some investors who would like to see four increases next year. As well, the rate statement said that the Fed did not expect the tax reform legislation to have any long-term effect on the economy, contradicting White House claims that the legislation would trigger substantial growth in the economy.

The markets will now shift to the ECB, which will set interest rates later on Thursday. The ECB is widely expected to maintain current rates, so investors will be focusing on the follow-up press conference with ECB President Mario Draghi. If the ECB sends out an optimistic message about the economy, the euro rally could resume. Meanwhile, German indicators continue to sparkle. Manufacturing PMI hit a new record, climbing to 63.3 points. The PMI Composite Output Index, which measures business activity, improved to 58.7, its highest level since 2011. A robust German economy has been the locomotive for the eurozone, which has rebounded in 2017 with stronger growth and lower unemployment.

Phase One Agreement an Important Milestone

Earlier this month, the UK and European Union reached an important milestone in Brexit negotiations, with the latter deeming that sufficient progress had been made to move the discussion on to the future relationship.

This comes 18 months after the UK voted to leave the EU and almost nine months after article 50 was triggered – officially starting the process – highlighting the snail's pace that the process has so far moved at and offering little hope that an agreement on the future relationship can be wrapped up by this time next year.

An agreement on the financial settlement, citizens' rights and the Irish border – the three issues the EU insisted must be resolved before trade talks could begin – at times looked unachievable, leading to speculation that talks may collapse before phase two even got underway, or that Theresa May could be ousted by frustrated Brexiteers in her own government.

While an eleventh hour deal was agreed – subject to approval by the European Council on Friday (8 December) – the response to the deal was more one of relief or even scepticism rather than optimism.

If phase one took this long to conclude, what hope do we possibly have that phase two can be completed in the next 12 months? Especially when the Irish border issue has been kicked down the road, rather than resolved.

What's more, Brexit Secretary David Davis' claim over the weekend that the agreement was more a statement of intent than a legally enforceable thing, will do nothing to build trust between the UK and EU ahead of trade talks. As it stands, the comments don't appear to have jeopardised the European Council's vote, but efforts will now be made to make it enforceable.

Why Did Sterling Fall After the Agreement?

As far as markets are concerned, the agreement was a positive step forward but not something to get carried away with. The pound hit a seven-month high – on a trade weighted basis – but the gains were short-lived and it is currently on course for a third consecutive intraday decline.

Of course, some of this is going to be a classic case of “buy the rumour, sell the fact”, where traders buy something on the growing expectation of a positive outcome then lock in profits (sell) once it's confirmed.

However, the fact that the gains so far have been fairly modest suggest the conclusion of phase one has not attracted the kind of optimism one may have expected. The fudged nature of it and above comments from Davis clearly won't have helped matters.

What Comes Next?

The next phase of negotiations will now begin at the turn of the year, with the two-year transition being a priority for the UK. Trade talks will likely continue to take a back seat for the EU, particularly if a transition is agreed, with other aspects of the divorce taking priority, including ironing out the details of those issues already discussed.

The next 12 months is likely to strongly resemble the last nine, which means more frustrating negotiations, slow progress and through the night talks as the deadline approaches.

A trade deal can't be signed until the UK has officially left the EU, which if the government gets its way will be signed into law for March next year, meaning much of the work will likely be done during the transition.

One thing seems clear, the drama that has engulfed negotiations over the last 12 months is unlikely to go away. Theresa May's position at home is borderline untenable and should she still be Prime Minister in March 2019, it will be quite an incredible achievement.

Her majority is being propped up by the DUP after a disastrous campaign and every day it seems one of her colleagues vying for her job is preparing to stab her in the back. Should this happen and she be replaced by a more fierce Brexiteer, negotiations could take a sudden turn for the worse.

As far as markets are concerned, we could see the pound gradually pare back its post-referendum declines over this period, assuming negotiations go to plan.

The FTSE has performed extremely well since bottoming in the days after the referendum – up around 30% at the time of writing – which has been strongly supported by the weaker pound as companies in the index make a huge proportion of their profits abroad.

If the pound does recover over the next year or two, this may therefore be a headwind for the FTSE and contribute to it underperforming its peers.

Spot Gold rallied on Wednesday on weaker dollar but was so far unable sustain extension on Thursday, after upside attempts were capped by falling 10SMA at $1259 which marks one-week high.

Positive fundamentals are supportive for the yellow metal, but technical studies remain in full bearish setup on daily chart and see risk of recovery stall.

Initial requirement for bullish continuation is close above 10SMA ($1257), with extension above 200SMA ($1267) needed to generate stronger bullish signal.

The downside is expected to remain vulnerable while falling 10SMA/base of falling 4-hr cloud caps, with stronger bearish signals expected on reversal below $1250/$1245 (Fibo 38.2% and 61.8% of $1236/$1259 upleg).

Res: 1257, 1259, 1264, 1267
Sup: 1253, 1250, 1245, 1240

Crude oil is has failed to break resistance given at 59.05 (24/12/2017 high). Support is given at 55.82 (07/12/2017 low). Expected to bounce back.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. For the time being the pair lies in an upside momentum. Strong support lies at 35.24 (05/04/2016) while resistance can now be found at 55.24 (03/01/2017 high).

Silver has been bouncing on hourly support at 15.61 (14/07/2017 low). Hourly resistance is given at 17.46 (13/10/2017 high). Expected to show renewed bearish pressures.

In the long-term, the trend is rater negative. Further downsides are very likely. Resistance is located at 25.11 (28/08/2013 high). Strong support can be found at 11.75 (20/04/2009).

Gold is still going lower after strong collapse even though traders are taking some profit. . Hourly support is given at 1236 (12/12/2017 low) . Resistance is located at 1259 (14/12/2017).

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1392 (17/03/2014) is necessary ton confirm it, A major support can be found at 1045 (05/02/2010 low).

Bitcoin's bullish momentum is far fom over. The technical structure has shown a tremendous positive short-term momentum. Hourly support is located below 14k (08/12/2017 low). Strong support stands very far at 2975 (22/08/2017 low). In the short-term, the digital currency should continue rising at levels unseen so far.

In the long-term, the digital currency has had an exponential growth. There are decent likelihood that the asset will reach $40'000 in 2018.

EUR/CHF continues to push towards resistance area above 1.17 and support given at 1.1610 (27/10/2017 low). Expected to show continued increase.

In the longer term, the technical structure has reversed. Strong resistance is given at 1.20 (level before the unpeg). Yet, the ECB's QE programme is likely to cause persistent selling pressures on the euro, which should weigh on EUR/CHF. Supports can be found at 1.0184 (28/01/2015 low) and 1.0082 (27/01/2015 low).