Daily Market Report 10/10/2013

Yesterday we saw a continued weakness in the pound against its major trading partners; this was largely due to disappointing manufacturing and industrial output.

The Office for National Statistics reported a drop in output across the manufacturing sector, from pharmaceutical firm to makers of computers, electronic & optical products; and food products, beverages & tobacco goods. The expectation was for to rise 0.4% but it in fact fell 1.2%.

Industrial Production fell by 1.1% month-on month, which is the worst drop since September 2012. Economists had pencilled in a 0.4% rise in output, as the UK’s economic recovery is seen to be picking up some pace. Following this bad news the UK trade deficit (he difference between imports and exports) was larger than expected in August – at £9.625bn, compared with forecasts of £9bn.

All of this disappointing news saw the pound quickly tumble across the board.

Those punters hoping for some pound revival off the back of a positive GDP estimate were once again frustrated when the figure came in at only 0.8% - lower than the previous estimate of 0.9%. Yesterday’s disappointing economic news could be the catalyst for further pound weakness after its solid run up since late August.

In the US, expectations the senate will resolve political deadlock of debt ceiling and the “Obama care” government shutdown sooner rather than later. It has been reported that House Republican and Senate Democratic leaders are open to a short-term increase in the debt limit.

The IMF also warned that When the US Federal Reserve starts to phase out its $85bn per month quantitative easing programme it could spark a rapid rise in global interest rates and “fire sales” of assets across the world’s financial markets.

Given the situation in the US at the moment and the potential for dovish Federal Reserve Governor Nominee Janet Yellen set to take over from Ben Bernanke; the FOMC minutes revealed last night that we may not see any tapering of quantitative until early 2014.

Global uncertainty leads to a flight from risk and investors looking towards the safe havens of the US, Japan and Switzerland to put their money.

However the yen’s attraction will be minimal as it does appear unlikely that Japan will tighten its own monetary policy. Bank of Japan’s Governor, Haruhiko Kuroda is set to announce today plans to buy 7 trillion yen of Japanese government bonds in order to achieve its two year target of 2% inflation.

Australian employer’s added 9,100 jobs in September, government figures showed last night, fewer than the 15,000 gain estimated by economists. The unemployment rate dropped to 5.6% last month from a four-year high of 5.8% in August. Analysts had forecast the figure would be unchanged.

Key Announcements:

12.00pm – GBP – Bank of England Interest Rate Decision: Set to remain at 0.5%.

12.00pm – GBP – Bank of England Asset Purchase Facility: Set to remain at £375bn.

13.30pm – USD – Initial Jobless Claims (Oct 4): Set to fall to 307,000.

17.20pm – USD – ECB President Draghi’s speech.