Thanksgiving in the USA turns the spotlight to European markets
The German Bund was yesterday dragged in to the Euro Zone crisis, when a bond auction in the primary market only managed to sell a third of the 10 year debt on offer. Whilst, rumours of a Belgium downgrade made the rounds adding further to the risk off attitude in the markets.
Due Thanksgiving in the US the focus will remain on the UK and Europe today and with the news that Japanese investors had turned to UK gilts in response to the debt and sovereign problems in Europe will be a positive for Sterling. A report from the Japanese MoF suggests that JPY1.53trn had made its way into the UK since the beginning of the year while selling around JPY1.46trn worth of European bonds. EUR momentum continues to remain to the downside against the USD and we would expect GBP to hold against the EUR ahead of key data releases.
In the UK although concerns over downward revisions to GDP growth may remain; government borrowing should remain on track. The government typically posts a cash surplus in October as quarterly corporate tax receipts are paid and this year should prove no different We look for the headline public sector net borrowing figure, which excludes financial interventions to fall from £14.1 billion to £6.7 billion. That would be £1 billion below its level a year earlier; reflecting the increase in VAT receipts and leaves borrowing on track to total £122.5 billion for the financial year as a whole.
The slightly stronger outlook for construction suggests that there is a small possibility that the Advance estimate of Q3 GDP is revised higher, but only by 0.1pp. We look for an unrevised 0.5% on the quarter, which would keep the annual growth rate at 0.5%. The fall in October Industrial Orders suggests that the CBI Industrial Trends survey will be muted in November. We look for the headline index to remain unchanged at -18, which would be weak given that in the recent past the survey has oscillated between weak readings and flat outturns.
German GDP should be confirmed at 0.5% in the three months to September, with the annual rate dipping by 0.3pp to 2.6%, the likely weakness of the fourth quarter should come through in a weaker Ifo survey. The Ifo survey tends to be much less volatile than the ZEW survey, so a smaller decline is likely, even so the series will be back at March 2010 lows.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.