Market Brief: Is November a done deal?

11 Oct 2017

Lewis Thorn

Dealing team

Yesterday the UK Office for National Statistics published the latest data on the performance of the UK’s industrial and construction sectors and the UK’s net trade balance.

Today's data releases
  Key levels
12:00 US Mortgage Applications   Support Resistance
GBP/USD 1.3030 1.3270
GBP/EUR 1.1120 1.1230

Market overview

The UK’s Office for National Statistics yesterday published the latest data on the performance of the UK’s industrial and construction sectors and the UK’s net trade balance too. The August release was accompanied by back revisions to historical data, specifically on the August figures, manufacturing output delivered a beat on expectations with a 0.4% monthly rise recorded against a market consensus of +0.2% Overall, manufacturing growth momentum now looks to be more solid than previous estimates had implied. Note it was the same story for the wider industrial sector figures too, with these benefiting from the revisions to manufacturing estimates. Our current forecasts envisage a 0.3% quarterly pace of GDP growth overall in Q3, with a small rise in services sector output pencilled in, alongside a bigger quarterly rise in industrial output and a marked decline in construction output. Despite some slightly disappointing trade balance numbers, the data doesn’t shift our view that the Bank of England is gearing up to raise Bank rate by 25bps on 2 November.
The Office for Budget Responsibility during a review of its own past forecasting stated that productivity in the UK will remain weak for the next five years. The review stated productivity has grown by just 0.2% a year for the last five years – much less than previously expected. “As the period of historically weak productivity growth lengthens, it seems less plausible to assume that potential and actual productivity growth will recover over the medium term to the extent assumed in our most recent forecasts,” the watchdog said. This doesn’t paint a positive picture for future prospects on economic growth, wage increases and government finances.
Yesterday evening Catalan President Charles Puigdemont refrained from declaring independence in his address to the regional Parliament last night. Whilst the President did declare that the referendum result had given him the mandate to pursue independence, he proposed delaying any further progress towards independence for a ‘few weeks’ in order to open dialogue with the Spanish government over the future of Catalonia. At the same time he repeated a request for EU mediation between Catalonia and Spain. European markets have taken some relief from the overnight news, €:$ trades back above the $1.18 level and the IBEX has opened 1.4% higher. However, markets will also want to hear PM Rajoy’s response and whether the government in Madrid will be willing to enter talks. Note that the PM Rajoy is set to convene his cabinet to discuss the way forward at 9am (local time) today.

The day ahead

With little out on the data front apart from some mortgage application data at midday in the US, it’s likely that politics will again dominate the headlines and any likely market moves. Prime Minister's questions are always likely to generate some activity and market will be assessing the levels of heat on Theresa May!

Thought of the day

This week is National Curry week! Running from 9-15 October, the curry has become one of the most popular meals out in the UK, with Brits spending £3.2bn a year on them! There are curries for all tastes, from a vindaloo to jalfrezi, a korma to a dansak. The most adventurous of diners can be catered for alongside someone who doesn’t enjoy spice at all. Likewise, in the world of FX, there are strategies for all requirements and views. From booking fixed forwards and open forwards all the way to looking at outperformance strategies such as TARFs, we can help find a solution perfect for your taste. So if you need to spice up your FX portfolio, poppa(dom) your Investec dealer a call to run through your options.

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