Daily Market Report 26/09/2013

Ahead of todays revised second quarter GDP figures from the UK, the pound received a welcomed boost as the CBI distributive trades survey announced a jump in retail sales in September.

UK retailers enjoyed their best month since June 2012 with furniture and carpet stores being the main contributors. Every carpet and furniture surveyed reported that retail sales were higher than a year ago, attributing the rise to an increased in activity in the housing market. As a result GBPUSD attempted an advance to the eight month high that we saw last Wednesday 18th August.

Earlier in the morning the GfK index of German consumer confidence rose to 7.1 in October, beating an expected rise of 7 and Italian consumer confidence rose to a two year high.

Data from the states weakened the US dollar as it left investors unable to guess when the Federal Reserve will begin to taper the size or pace of its US$85 billion asset-purchasing program, which seeks to spur recovery by driving down interest rates, weakening the dollar in the process.

US new home sales rose 7.9% to 421,000 in August from a 390,000 in July. Expectations were for new home sales to rise to 420,000 units last month. 

A separate report showed that U.S. durable goods orders, excluding transportation items, fell 0.1% in August, disappointing expectations for a 1% increase, after a 0.5% contraction in July. Overall durable goods orders in the US rose 0.1% in August, short of expectations for a 0.2% increase following a 8.1% decline in July.

The debate over President Barack Obama's healthcare bill, the Affordable Care Act being funded could well set the stage for a fiscal showdown between Democrats and Republicans.

While the bill faces little chance of survival, concerns that both parties will go back and forth crafting and rejecting spending proposals as the US runs close to hitting its debt ceiling weakened the attraction of the US dollar.

Failure to agree on a solution could result in a government shutdown in October. This is a situation where the government stops providing all but their essential services. Treasury Secretary Jack Lew has warned that the government could run out of money as early as October 17th.

A vote on the debt ceiling could come as early as this Friday and the Senate are expected to vote on legislation to avoid a shut down on Sunday.

Looking ahead to today, revised second quarter GDP figures for both the UK and US will come into focus with both set to be revised higher to 0.7% and 2.7% respectively. The UK current account deficit is also set to reduce and in the US the number of jobless claimants is set to increase from last week.

Looking at this, we would expect a strong start for the pound in the morning against most of its counterparts, but against the US dollar we could see it limited if the US GDP figure is revised higher.

Key Announcements:

9.30am – UK – GDP (Q2): Expected to be revised higher to 0.7%.

9.30am – UK – Current Account (Q2): The deficit is expected to be reduced to £12bln.

13.30pm – USD – GDP (Q2): Expected to be revised higher to 2.7%.

13.30pm – USD – Initial Jobless Claims (Sep 20): Expected to increase by 15,000.

15.00pm – USD – Pending Home Sales (Aug): Expected to improve to only a 1% fall.