Daily Commentary BY THE CURVE TEAM –

Central Banks, US Tax Dramas, Data and More

15th December, 2017

It has been a massive 24 hours with a bunch of central bank activity, wobbles in the US around the tax plan and a couple of key data releases. Things are certainly on the move, setting the scene for a very interesting 2018.

Central banks have dominated much of the headlines over the past 24 hours. The European Central Bank elected to leave rates on hold but were much more positive about the outlook. That said, they talked down the chance of a change of direction for policy just yet as their single mandate on inflation is yet to be achieved. If current trends are to continue we are likely to see some changes from the ECB before too long.

The Bank of England also left rates on hold and seemed to have little concern about the fallout from the somewhat disorderly Brexit process of late. They have acknowledged that it could become a greater risk moving forward but for the time being, inflation is above 3% and that is what their focus seems to be on.

The Bank of Canada also slipped into the headlines with some somewhat hawkish comments from Governor Poloz. While the official party line has been somewhat cautious following two rate hikes in recent months, he warned that being cautious doesn’t mean doing nothing.

Moving to the data and yesterday’s Australian employment date remained strong with another bumper month of jobs growth. The number looks to be a little high with some statistical gremlins likely to have inflated the number a little but the trend of a strong employment market is clear. The questions over the data were largely to the +61k jobs figure not putting a dent in the unemployment rate after a surge in the participation rate.

Meanwhile in the US the latest retail sales number were hard to argue with after a solid rise in November. It was largely overshadowed by the US Tax plans which got the wobbles overnight a few Senators playing hard ball as the reconciliation of the Senate and House bills continues. It looks increasingly like it will drag into the new year.

As for the rest of the week there is little in the way of data to come which will leave markets to their own devices as we head into the penultimate week of trade before the end of the year.

David Flanagan

Director - Interest Rate Markets