UK disposable incomes set to slide.

The Philly Fed manufacturing index dipped further to -19.4 for November from -8.7 previously and well below consensus forecasts of -6.2. New orders remained in contraction territory and unfilled orders also declined sharply for the month with smaller growth in shipments.

There was a smaller increase in employment for the month with a small net increase in inflation pressures. Companies remained generally pessimistic over the outlook with inflation pressures expected to weaken slightly with the data overall increasing reservations over the outlook.

US initial jobless claims declined slightly to 222,000 in the latest week from 226,000 and close to consensus forecasts.

Continuing claims increased to 1.51mn from 1.49mn and the highest reading for over six months which suggested that there had been a net weakening in the labour market.

The dollar posted gains on Thursday when equity markets moved lower, but the US currency was unable to sustain the gains as equities recovered while underlying position adjustment continued in choppy intra-day trading.

In the Autumn Statement, Chancellor Hunt announced fiscal tightening of £55bn over the next five years. Most tax allowances will be frozen for six years which will contribute to major fiscal drag. Spending levels will be capped, although most tightening will take place after the next election.

Hunt announced that windfall taxes will be increased and the overall tax burden will increase to a 70-year high. The Office for Budget Responsibility stated that the overall debt/GDP ratio will increase while there will be a decline in real disposable incomes of over 7% by 2024, the sharpest 2-year decline on record.

Sterling lost ground after the Autumn Statement, but an important element was the weaker trend in risk appetite and the UK currency rebounded later in the session as equities managed to regain ground and Sterling short covering kicked in.

Japan’s core inflation rate increased to a 40-year high of 3.6% from 3.0% previously and above expectations of 3.5%. Bank of Japan Governor Kuroda, however, insisted that there would be tightening of monetary policy until wages increases accelerate.

The Euro was influenced to an important extent by risk appetite during Thursday. The Euro lost ground as equities moved lower. US bond yields overall edged higher during the day. EUR/USD dipped to lows just above 1.0300 before a recovery to 1.0360 with little net change on Friday.

Overall dollar demand remained subdued in global markets. Higher yields underpinned the dollar against the yen. USD/JPY peaked just above 140.50 before fading.  Higher Japanese inflation provided an element of yen support with USD/JPY around 139.75.

The Swiss franc lost ground amid reduced fears over Ukraine developments. Hawkish SNB rhetoric had only a limited market impact.

EUR/CHF moved above 0.9850 with strong USD/CHF gains to highs above 0.9550 before settling around 0.9520.

Sterling lost ground after the Autumn Statement, although the moves were dominated by risk conditions. Sterling recovered strongly later in the session. GBP/USD dipped to 1.1765 lows before a strong recovery to 1.1900 and traded close to this level on Friday.

Commodity currencies lost ground but recovered significantly from intra-day lows. AUD/USD dipped to lows at 0.6635 before a recovery to 0.6685 and extended the recovery to just above 0.6700 on Friday. USD/CAD settled at 1.3330 from 1.3400 highs and traded around 1.3320 on Friday.

Economic Calendar