German Consumer Confidence Increased; BOC Is Next

German consumer confidence rose; UK current account deficit narrowed; Italian government may fall. Focus turns to Canadian retail sales, BOC rate statement and US consumer confidence, manufacturing data.

Despite the disappointing data, November GfK German consumer confidence increased to 5.3 from 5.2. German labor market that remains strong and rising income expectations contributed to the increase. However, the economic expectations index fell to -6.2 from 4.8.

In the UK, current account deficit narrowed to GBP -2 bln in Q2 from GBP -4.1 bln in Q1 which is the best print since Q1 2008. BOE Governor King said today that inflation is peaking and that QE was executed because there was a risk that the inflation would fall below BOE target level. GBP has been relatively strong over the past few sessions pushing GBPUSD to over 1.6 today.

Italian political situation became more complex as one of PM Berlusconi's ministers warned that the government could fall over economic reforms demanded by the EU. PM Berlusconi is supposed to present a growth and debt reduction plan on Wednesday but yesterday's Italian government meeting failed to produce any agreements. Falling government in the fourth largest European economy would surely reverse the current risk on environment.

The New York session starts at 8:30 am ET with Canadian retail sales that are expected to rise to 0.4% in August from -0.6% in July. Core is seen at 0.4% from a previous unchanged reading. Usually, the market experiences a considerable volatility after retail sales data is released. Today, the impact may be weaker as traders will be waiting for the BOC rate announcement and statement at 9:00 am ET. BOC is seen keeping rates unchanged at 1% despite the 0.5% core CPI increase last Friday.

9:00 am will also bring S&P Case-Shiller index that is anticipated to slow the rate of decline in August to -3.6% from -4.1% on annual basis.

Consumer confidence that is due at 10:00 am should tick up slightly to 46.1 from 45.4 in October and Richmond manufacturing index is expected to print +2 from -6.

Patrik Urban