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October 2017

Sterling up on consumer credit rise

Published: Tuesday 31 October 2017

  • Sterling up on consumer credit rise
  • New Zealand Dollar weaker as business confidence slumps
  • Canadian Gross Domestic Product growth improvement likely 
By David Johnson
All quiet for European markets before growth data released…
The European markets were quiet in early trade. It is a holiday in Germany today to mark the Martin Luther lead Reformation. I hadn’t realised until today that part of Martin Luther’s complaint was the selling of ‘tickets’ to Heaven in what were euphemistically called ‘indulgences’ and the funds received were used to build St. Peter’s Basilica in Rome. Even if you aren’t a person of faith, it is an interesting subject.
Aaaanyway, back to the markets – will it be trick or treat for today’s economic data?
Eurozone growth data expected today
Eurozone economic growth data in the form of the preliminary Q3 Gross Domestic Product (GDP) growth data will be released at 11:00am. A drop from last quarter’s 0.7% growth to something more akin to 0.5% is envisaged and that won’t help the already embattled Euro. Politics is driving the current Euro weakness.
Earlier this morning, France displayed impressive economic improvement by posting 2.2.% growth in 2016, in contrast to the 1.5% figure for the UK.
Eurozone inflation and unemployment figures will also be released today, so all eyes are on the Euro and how it responds to the flurry of European data.
Sterling strengthens in anticipation of interest rate rise
Sterling is mildly stronger today, fuelled by a rise in consumer credit and the impact that will have on the Bank of England (BoE) when they meet on Thursday. Many are expecting the first interest rate hike in a decade from the BoE and Sterling has strengthened on the expectation of greater yields. British data is notable by its absence today, so Sterling is likely to tread water in the interim.
Bank of Japan keeps interest rates the same
Moving over to Asia Pacific, The Bank of Japan did as was expected and left the Japanese base rate on hold at minus 0.10 percent. That is not market moving; their base rate has been hovering around 0% since the mid 1990s and has been marginally negative since December 2015.
More pressure for New Zealand Dollar
The New Zealand Dollar is weaker this morning after New Zealand business confidence dropped to a two-year low in October. Political uncertainty definitely weighed on business owners and poor Purchasing Managers’ Index (PMI) data from China added to that concern to cause traders to sell NZD overnight. We are expecting the NZ unemployment rate to have improved when that data is released tonight, so this may be a small window for NZD buyers to exploit.
Australian Dollar falls on data disappointment
The Australian Dollar also took a hit overnight after new homes sales data showed a drop in September; a 6.1% drop in fact.  That cancelled out 2/3 of the previous month’s gains and is yet another bit of mixed data for the Reserve Bank of Australia (RBA) to consider. There is no doubt the RBA committee is in a quandary over whether to start raising the base rate, cutting it further, or just sitting on their hands. Meanwhile, the weaker Aussie Dollar does help exporters, so there’s the silver lining.
Canadian growth expected to be lacklustre
Last but not least, we’ll get Canadian GDP growth data later and that is expected to be positive, but slightly anaemic. Something like 0.1% growth in the month to August would be an improvement on the zero growth figure we saw for July, but the annualised rate is still likely to be a tad down on the July number. A weaker Canadian Dollar is likely if the forecasters are accurate.
Happy Halloween!
And it is All Hallows Eve today. Tricking and treating will happen, pumpkins will be assaulted from all angles and a fair amount of fancy dressing will take place.  Oddly, the original jack-o’-lanterns were carved from turnips and mangel wurzels. All Hallows Eve is like a lot of festivals, in that religious traditions got caught up with pagan rites and harvest festivals to form what we have today. We hope you have a Happy Halloween. 
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Thought for the day

If a picture paints a thousand words then why do we still write books?

Today's major economic releases

Market BST Data/Event Previous Expected
EUR 11:00 EU: Consumer Price Index Estimate 1.5% 1.5%
EUR 11:00 EU: Core Consumer Price Index Estimate 1.1% 1.1%
EUR 11:00 EU: Preliminary Flash Gross Domestic Product 0.7% 0.5%
EUR 11:00 EU: Unemployment Rate 9.1% 9.0%
CAD 13:30 Canada: Gross Domestic Product 0.0% 0.1%
CAD 13:30 Canada: Raw Materials Price Index 1.0% 0.4%
USD 13:30 US: Employment Cost Index 0.5% 0.7%
USD 14:45 US: Chicago Purchasing Managers' Index 65.2 60.2
USD 15:00 US: Conference Board Consumer Confidence 119.8 121.1
NZD 22:45 New Zealand: Employment Change -0.2% 0.8%
NZD 22:45 New Zealand: Unemployment Rate 4.8% 4.7%