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Trending Economic: Afternoon Brief [27 November 15]

EUR is likely to remain under pressure heading in to the ECB policy meeting on 3rd December; we expect a 10bp rate cut in the deposit rate, although the rates market has now started to price in a 15bp rate cut. There is also speculation of a two tiered application to the negative deposit rates, but it is difficult to determine the impact of such a move. We see some risk to the EUR bears as chance of ECB underwhelming the market at the next policy meeting is high. Also the German 2-year yield is trading at record low of negative 42 bp. In terms of other Central bank meetings, we don’t expect RBA or BOC to cut rates at next week meeting.

UK Q3 GDP growth rate (2nd estimate) q/q came in same as expected at 0.5%. The growth rate y/y grew 2.3%, also same as expected and unrevised from earlier. Overnight GfK consumer confidence for November came in at 1, below the expected 2, but the Business investment grew to 2.2% in the second quarter, up from the previous 1.6%. Overall we remain short-term bearish on GBP, given the BoE’s recent stance & fiscal tightening projected by the autumn forecast statement.

Sweden’s retail sales for October y/y came in at 5%, above the expected 3.2%. SEK is among the top gainers in the G10 currencies today. Elsewhere Norway’s retail sales m/m for October came in at 0.9%, up from a previous -0.8% in September and y/y figure also improved to 0.6%, from previous 0%. Also the number of unemployed persons in Norway for November dipped to 99.38K, from 98.97 in October, although the overall figure is high. Overall impact on NOK is neutral, but we see upside vs. EUR as Norway’s recent economic data has improved enough not to warrant a Norges bank rate cut at the next meeting.

Overnight the Japanese inflation data & unemployment rate both come in better than expected, but this was negated by a sharp drop in household spending, which declined by 2.4% y/y, well below the 0% expected. The MoF weekly data revealed increased foreign bond buying by Japanese investor while stock investment in Japan by foreigners also grew (below expected). Overall impact on JPY will be short-term positive, but we see JPY weakness to return as economy remains stagnant and PM Abe continues to experiment: Japan’s finance minister Aso said the PM Abe has ordered an extra budget to target low income ageing people.