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%.

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.