Daily Market Report - 15/10/2014

The pound tumbled yesterday as UK inflation fell even further than expected, down to 1.2 per cent in September from 1.5 per cent the previous month, hitting a five-year low. Inflation was expected to slow slightly to 1.4 per cent according to analyst forecasts. But the slump is even further below the Bank of England’s two percent goal and comes in under that target for the ninth consecutive month.

Inflation as pushed down further by falling transport costs and the price of recreational goods, airfares and the cost of tablet computers became considerably cheaper. The Supermarket price wars and the price of crude Oil falling also contributed to a lower inflation rate.
Many analysts now believe an interest rate rise could be held off beyond the first quarter of 2015 and as a result the pound was sold off heavily yesterday morning.
German analyst and investor morale fell below zero for the first time in nearly two years in October, suggesting Europe's largest economy is reeling from crises abroad and a weak euro zone. The ZEW’s monthly survey of economic sentiment tumbled for a tenth consecutive month to -3.6. That was the weakest reading since November 2012 and was much lower than 1.0 reading economists had expected
Following this data the German government slashed its growth forecasts for this year,and 2015. It now expects growth of just 1.2% this year, down from 1.8% back in April. In 2015 it now expects growth of 1.3%, down from 2.0% six months ago.
The downturn in the German economy, along with France and Italy’s problems, could potentially drag the Eurozone back into recession even as ‘peripheral’ countries recover. Germany, France and Italy are responsible for 66% of euro zone GDP. None of these three registered any positive growth in Q2, with Germany and Italy contracting 0.2% and France having Zero growth. Germany is also Russia’s largest EU trading partner and as a result Germany stands to lose the most from the trade sanctions currently imposed. 

Key Announcements:

09.30 BST GBP:  UK ILO unemployment rate (Aug) expected to fall from 6.2 to 6.1%.
13.30 BST USD : US producer price index YOY (Sept) expected to be unchanged at 1.8%
13.30 BST USD : US Retail sales expected to fall to -0.1% from 0.6%
19:00 BST EUR :  ECB President Mario Draghi is making a speech  

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