UK industrial production rose in line with consensus forecasts at 0.2% for August and manufacturing data edged above expectations with a 0.4% gain. The year on year manufacturing also edged up to 2.8% with July’s figure being revised up to 2.7% after the ONS made substantial revisions to previous data. Construction output data was also revised upward, but any beneficial impact to the Pound was offset by a much wider-than-expected trade deficit of £14.2bn, consequently reinforcing medium-term concerns. The NIESR estimated GDP growth of 0.4% in the three months to September from an upwardly-revised 0.5% the previous month.
Political tensions and Brexit talks continue to drive speculation, although there were no major negative developments which provided some Sterling protection. A weaker US Dollar allowed a challenge of resistance above 1.3200 while the Euro edged higher to around 1.1160.
The US Dollar Index, is holding on around the 93.00 level so far this morning, as the selling impetus around the Buck seems to have taken a breather for the time being.
Yields in the US money markets remain the exclusive driver of the Greenback, with the 10-year reference staging a slight rebound from Tuesday’s lows of 2.32% to the current levels of 2.36%.
It has been suggested that we should expect more debate on inflation and financial conditions from the upcoming release of Federal Open Market Committee (FOMC) Minutes later today as the Federal Reserve (Fed) gears up to hike in December. The minutes could reveal more about how the balance between a stronger economy and still too low inflation is viewed. Differing views have been seen in previous meetings, with one side, who are also the majority, trusting the Phillips curve (which says that lower unemployment eventually leads to wage pressure), while the other side believes in waiting for clearer signs that inflation is moving towards the Fed's 2% target.
In the day ahead, as aforementioned, we see the publication of the Federal Open Market Committee (FOMC) minutes from the latest meeting. In addition, Chicago Fed C.Evans and San Francisco Fed J.Williams are due to speak, keeping the attention focused on the Buck.
In the Eurozone yesterday, the single currency saw early gains as latest German trade data with exports advanced to 3.1% for August for a 7.2% annual gain. The currency has been underpinned by firm sentiment as the Dollar was unable to make a headway on the back of increased pressure for tapering on the bond purchase programme.
The Euro reached highs of 1.1832 against the Dollar, breaking the 1.1800 barrier whilst against the Pound, the pair was generally level across the day, in and around 1.1180, but did break the 1.12 resistance level briefly.
Catalan government President Puigdemont yesterday stated that he would satisfy demands on the independence vote. That said, he did step away from conflict in not making an independent unilateral declaration. Instead, Puigdemont wished to begin negotiations with the Madrid government, calling for parliament to put on hold the referendum result.
The focus of today’s market will mainly be on the Spanish-Catalan issue as high uncertainty continues. This could warrant some cautiousness in regards to Spanish assets, while potentially supporting safe-haven flows in the Bund, especially if we receive a firm verbal response from Madrid. Outside of Spain, the focus turns to a speech by European Central Bank (ECB) member Praet.
Data To Watch:
6:00pm USD 10-Year Note Auction,
7:00pm USD FOMC Minutes,
7:40pm USD FOMC Member Williams speech,
7:50pm EUR ECB's Praet Speech,
0:01am GBP RICS Housing Price Balance (Sep)
Posted in Daily Market News on Oct 11 2017