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October 2017

Sterling weaker ahead of Gross Domestic Product (GDP) data, then strengthens on good news

Published: Wednesday 25 October 2017

  • Sterling weaker ahead of Gross Domestic Product (GDP) data, then strengthens on good news 
  • Australian Dollar weaker on inflation numbers
  • Bank of Canada likely to keep Canadian base rate on hold
By David Johnson
 
 
 
Sterling stalled in advance of UK growth figures – but data brings positive news
 
A lack of data meant Sterling had another range trading day yesterday, as traders braced themselves for this morning’s first estimate of UK economic growth in the third quarter of the year. Anything lower than the second quarter figures would damage the value of the Pound, but thankfully, a stronger figure was released. The announcement showed that the UK economy grew 0.4% in Q3 of 2017, an improvement on Q2’s 0.3% and welcome news for markets and investors. The data showed continued growth in both UK manufacturing and service sectors, playing an important part in the growth of the overall economy. The Pound has climbed back up against its main currency counterparts, the Euro and US Dollar.

A word of caution: 0.4% remains below the target long-term growth rate for the UK, and does point to the worst performance for the UK economy since the financial crisis in 2008. Another cautionary note is that the first draft of this data is based on a very small sample of the full data. Revisions are not uncommon. A volatile morning for the Pound is highly likely.
 
Australian inflation falls short of forecast
 
Data released overnight showed Australian inflation was not as bullish as many had forecast. The markets had expected 2.0% as an annualised figure but the real number was 1.8% and the Australian Dollar weakened by a cent and a half against the Pound on the news. This softer inflation number takes the pressure off the Reserve Bank of Australia and reopens the debate about whether interest rate cuts may still be appropriate.
 
GBP strong against NZD following New Zealand political uncertainty

The Sterling – New Zealand Dollar rate is at the highest we have seen since July 2016. Technically, this opens the door for further gains; the upward momentum is intact. If you need to sell NZD, beware of a spike to test levels we haven’t seen since the immediate aftermath of the Brexit vote.
 
European political tensions heighten
 
This morning’s other news is European in nature. There is a lot of concern over the Spanish government’s plans to retake control over Catalonia. If it isn’t handled with finesse, Catalan leaders will be handed a moral victory and that will embolden others across Europe with a separatist agenda. You could argue the same about EU negotiations with the UK as well. Meanwhile, German IFO indices, a leading economic indicator for Germany, which measure business sentiment, will be released today, along with Italian industrial data. Neither is likely to move the Euro in any meaningful way.
 
Canadian interest rate decision could boost Canadian Dollar further
 
This afternoon brings the Bank of Canada’s interest rate decision. No change is forecast to their 1.0% base rate, but they may be nearing another rate hike, and any hint of that will be picked up on by traders and analysts alike. The Canadian Dollar is performing well, much to the chagrin of those who need to buy CAD. Any further strength could scupper the budgets of those importing from or planning to move to Canada.
 
Up, up and away…!
 
And, in a trip inspired by the movie, “Up”, Tom Morgan took to the skies over South Africa in a camping chair tied to 100 helium balloons. He flew for 15.5 miles at heights of up to 18,000 feet before having to start popping the balloons in order to land before forecast high winds got to him. Mad as a basket of weasels, but heroic too. 
 
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Storm in a teacup?

Mike goes to the local pub and sees Sister Mary from the local Convent standing outside.

“Don’t go inside, Michael Connor,” she implores, “I know your mother well and she knows that alcohol is the work of the devil and it can only lead to paths you would not like to tread.”

“Sister Mary,” says Mike. “Have you ever tasted alcohol? It seems to me that, before you label something as evil, you should at least try it to see what you are talking about.”

“You make a very good point,” says Sister Mary. “I will try it, but I can’t be seen going into a pub. I’m sure you understand. If you could put a little whiskey in a teacup and bring it out to me, I will try it and then we can discuss it.”

So, Mike goes into the pub and asks the landlord for a small whiskey in a teacup. The landlord doesn’t question him, but puts the cup under the optics and pours a small whiskey as asked.

As he hands it to Mike, he leans over the bar and whispers, “I’m getting a little low on teacups, so could you please ask Sister Mary to send some back in?”

Today's major economic releases

 
Market BST Data/Event Previous Expected
GBP 09:30 UK: Preliminary Gross Domestic Product 0.3% 0.3%
USD 13:30 US: Durable Goods Orders 2.0% 1.0%
USD 13:30 US: Core Durable Goods Orders 0.5% 0.5%
CAD 15:00 Bank of Canada Overnight Rate 1.00% 1.00%
CAD 15:00 Bank of Canada Rate Statement    
CAD 15:00 Bank of Canada Monetary Policy Report    
USD 15:00 US: New Home Sales 560k 555k
USD 15:30 US: Crude Oil Inventories -5.7m -2.6m
CAD 16:15 Bank of Canada Press Conference    
NZD 22:45 New Zealand: Trade Balance -1236m -900m