Daily Market Report 27/09/2013

The pound weakened yesterday following fundamental data which came in below expectations.

UK GDP figures were revised higher from 0.5% to 0.7% in the second quarter showing a moderate pace of growth for the UK. However year on year growth fell shy of expectations showing only a 1.3% growth instead of 1.5%. Also the UK’s current account deficit failed to reduce as markets were anticipating and actually widened to £13bn in the last quarter.

So whilst the GDP data seems to suggest a strong performance for the UK leading up to the third quarter, it does appear the market is getting a bit ahead of itself on the extent of the recovery in the UK and thus for now we could well see further gains in the pound limited.

The dollar moved higher against its counterparties yesterday after US weekly jobless claims fell by 5,000 to 305,000 instead of rising to 325,000. This gave the US dollar support by keeping expectations alive for the Fed to taper it quantitative easing program.

However gains in the US dollar were limited after data showed that U.S. pending home sales dropped 1.6% in August, more than an expected 1.0% decline. Data also showed that the U.S. economy expanded by only 2.5% in the second quarter, just shy of expectations for a 2.6% growth rate.

In Europe, we saw some political uncertainty in Italy as members of Silvio Berlusconi’s party threatened to walk out of parliament if the former prime minister was ousted from parliament. The senate is due to vote next week on whether the controversial politician should be ousted from his seat following his recent tax fraud conviction and four year prison sentence.

On to today, the pound has started very strong this morning due to a number of factors. Firstly a report by GfK showed that UK consumer confidence is at its highest in six years. Secondly, Nationwide Building Society revealed that house prices rose higher than expected to 5% in September when compared to last year. And thirdly, BoE Governor Mark Carney made comments in a local newspaper stating that given the strength in the economic recovery, he sees no case for quantitative easing and thus has no support for it.

This could potentially give the pound a case to strengthen further with initial targets on the upside against the euro and the US dollar the most highs that we saw on the 18th September.

ECB President Mario Draghi is set to make a speech as well as several members and there is economic data also set for release from the euro zone and stateside today.

The US will be in focus this weekend as the Senate are expected to vote on legislation to avoid a government shutdown.

Key Announcements: 

10.00am – EUR – ECB President Draghi Speech.

10.00am – EUR – Economic Sentiment Index (Sep): Expected to increase to 96.

10.00am – EUR – Business Climate (Sep): Expected to increase to -0.1.

10.00am – EUR – Consumer Confidence (Sep): Expected to fall to -15.

10.00am – EUR – Industrial Confidence (Sep): Expected to improve to -7. 

10.00am – EUR – Services Sentiment (Sep): Expected to improve to -4.8.

13.00pm – EUR – German CPI (Sep): Expected to remain at 1.5%.

13.30pm – USD – Fed’s Rosengren Speech.

13.30pm – USD – Personal Spending (Aug): Expected to increase to 0.3%.

13.30pm – USD – Personal Income (Aug): Expected to increase to 0.4%.

14.55pm – USD – Reuters/Michigan Consumer Sentiment Index (Sep): Expected to fall to 78.