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Trending Economic: European session Brief (10th December 2015)

The main risk event overnight was of course the rate decision out of New Zealand and in line with expectations the official cash rate was cut to 2.50% from 2.75% previously. This marks the fourth rate cut by the RBNZ since June as the commodities down turn continues to hit the economy hard with global dairy prices plummeting in recent months. The NZD did however rally by over 1% against the Euro, pound and Yen. This is on the back of comments from RBNZ Governor Wheeler which was less dovish than expected. Specifically the RBNZ forecasts that annual inflation will tick back up to the 1% to 3% range by Q1 of 2016. Despite these relatively upbeat comments we don’t see economic conditions improving in the near term for New Zealand as the commodities down turn has shown no signs of bottoming out as of yet as well as volatility in China persisting. It is also the case that the NZD was deemed to be too strong relative to the goals of the RBNZ as Governor Wheeler stated that “the rise in the exchange rate is unhelpful and further depreciation would be appropriate in order to support sustainable growth”. Therefore we see the potential for a weakening NZD over coming weeks heading in 2016.

The AUD also received a lift overnight on the back strong employment data once again, beating analysts expectations with the futures market now pricing in a 20% chance of a rate cut to 1.75% by March 2016. Specifically The Employment Change came in at 71.4K vs. -10.0K expected and 56.1K previously.   The Unemployment Rate also improved coming in at 5.8% vs 6.0% expected and 5.9% previously. However as with New Zealand we see scope for further easing in Australia in the medium term on the back of lower commodity prices and a slowing Chinese economy.

Looking ahead to today the main release will be monetary Policy data out of the UK set to be released at 1200GMT and as always with the BoE no change is expected in either the Official Bank Rate (0.50%) or the Asset Purchase Facility (375B). BoE Governor Carney is also set to speak today at 1830GMT; however this is expected to be low impact as it will not be focussed on monetary policy issues.

Crude Oil remains volatile after yesterday’s positive inventory data with a release of -3.6M vs. 0.7M expected and 1.2M previously. This caused a brief rally in prices to $39 a barrel (WTI) however this was swiftly rejected.