Daily Market Report 09/10/2013

In what proved to be a volatile day for the US dollar saw the greenback eventually finish higher against 13 of its 16 most traded peers on continued safe haven demand.

In the last week the yen had been the favoured safe haven currency for investors but after economic data revealed that Japan’s current account surplus unexpectedly shrank to a record in August; investors turned back to the US dollar. Demand for US denominated assets could also be seen again as US 10 year treasury bonds rose by 0.2%. 

Speaking yesterday evening, President Barack Obama did seem to extend an olive branch to the Republicans by suggesting he is willing to talk about anything with them including changes to his health-law, once the government shutdown ended and the Republicans raise the debt ceiling. Failure to do so could mean the US would face a “very deep recession”, an opinion that was also echoed by IMF chief economist Olivier Blanchard.

In its latest World Economic Outlook report, the IMF downgraded its growth forecasts for the world economy to 2.9% this year from 3.1%. Its 2014 forecast was also revised lower to 3.6% from 3.8%. 

However the IMF’s forecasts for the UK were upgraded higher to 1.4% this year and to 1.9% for 2014. The news comes ahead of data today which is set to reveal that manufacturing and industrial output increased in September in the UK and growth in the UK for the months leading up to September rose to 0.9%. Continued encouraging data would lend further support for the pound.

We had some fairly disappointing data from Germany yesterday as factory orders fell by 0.3% in August. A case that the euro could be over-valued against the US dollar could be made seeing as exports only rose to 1% instead of 1.5% in August, falling shy of market expectations. The IMF improved the growth outlook for the euro zone but still think that single bloc area will contract by 0.4% in 2013 instead of 0.5%.

Coming back to the US, President Obama has nominated Janet Yellen as the successor to Ben Bernanke as the next Chairmen of the Federal Reserve. The news is not really surprising and her possible appointment is most likely priced into the markets.

As well as data from the UK today, we have the ECB monthly report, German industrial production and later in the evening we have the Federal Reserve minutes.

Key Announcements:

9.30am – GBP – Industrial Production (Aug): Expected to improve to -0.6%.
9.30am – GBP – Manufacturing Production (Aug): Expected to improve to 1%.

9.30am – GBP – Total Trade Balance (Aug): The deficit is expected to reduce to -£2.05bln.

10.00am – EUR – ECB Monthly Report.

11.00am – EUR – Industrial Production (Aug): Expected to improve to -1.5%.

15.00pm – GBP – NIESR GDP Estimate: Expected to expand by 0.9%.

19.00pm – USD – FOMC Minutes.