Europe flat ahead of BoE inflation report hearing

European indices are expected to open relatively flat on Tuesday, with FTSE and CAC futures a couple of points lower, while DAX futures are slightly higher. It’s looking like being another quiet day in the financial markets, similar to what we saw on Monday, with trading volumes being reduced as a result of a lack of economic data or market moving news. Today is looking no different, particularly in the European session, when no medium or high impact data is scheduled for release. The only noteworthy event this morning will be the inflation report hearing, when BoE Governor Mark Carney will testify, along with other members of the MPC, in front of Parliament’s Treasury Committee. While this can bring with it a certain amount of volatility, as MPC members go into more detail about certain aspects of recent policy decisions, I’m not expecting much from the testimony today. The main reason for this is simply that Carney and the MPC have been very transparent about what they expect from the economy and how they intend to react to it, particularly at the inflation report press conference a couple of weeks ago. They provided the new forecasts for growth, inflation and unemployment and stated that they will stick with the initial forward guidance, despite the revised forecasts showing unemployment dropping to 7% much earlier than originally expected. I’m not sure what we can learn from today’s testimony that we don’t already know, although that doesn’t mean we shouldn’t pay attention. These things have a tendency to surprise us when we’re least expecting it. Aside from this, we’ll have to wait for the US session this afternoon for the markets to pick up, but even then it’s expected to remain relatively quiet. What we’re seeing this week is the calm before the storm, with next week bringing a number of central bank meetings, including the RBA, ECB and the BoE, the Fed Chair nomination, the Beige Book and a large number of economic releases, including the all important US jobs report on Friday. What this means for this week is that we’ll probably continue to see the likes of the S&P and the Dow grinding higher and hitting new record highs along the way, but when it comes to the end of the week, investors may become a little more risk averse. That said, this could depend on what we get from the data and whether it changes peoples view that the government shutdown in October had no direct impact on the economy, and more importantly, consumer and business confidence. We have some data being released later that could impact people’s view on this, starting with housing starts and building permits for September and October. While this is less likely to have a significant impact on housing than say, consumer spending or business investment, it can still have some impact. I don’t expect that to be the case though, with both actually seen improving slightly compared to August. The biggest release today will be the November consumer confidence figure. This should give important insight into whether the shutdown and near-default had any lasting impact on consumer sentiment, which could then affect spending. Last month we saw a huge drop in the figure, from 80.2 to 71.2 in response to the shutdown. Although this was then followed by retail sales that exceeded expectations, rising 0.4%, which goes to show that while this is a good indicator of future consumer behaviour, it’s not always reliable. That said, I expect today’s figure to better reflect the October retail sales figure, which means the expected figure of 72.9 could be a little conservative. Ahead of the open we expect to see the FTSE down 3 points, the CAC down 1 points and the DAX up 7 points

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