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Market Brief
The monthly gross domestic production (GDP) estimate released today by the Office for National Statistics for the UK increased 0.1% in October. Analysts had predicted an economic gain of 0.4%. According to the report, services output increased by 0.4%, mainly driven by a 3.5% increase in human health services. Production output in the United Kingdom missed estimates and decreased by 0.6% in October compared to the previous month. The report stated that mining and quarrying contributed most to the downtrend, dropping 5%. Meanwhile, manufacturing output remained flat compared to September.
According to the Office for National Statistics released this morning, the UK’s trade deficit increased by £4.5 billion from September to October, excluding precious metals. Britain’s goods trade deficit expanded by £6.2 billion to £40.9 billion in the third quarter and the services surplus rose by £1.6 billion to £35.7 billion. Exports fell by £2.2 billion to £151.4, while imports grew by £2.3 billion to £156.6 billion.
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The UK FTSE100 had looked to be following the Asia-Pac indices lower but has held the 7300-price level this morning. The Nikkei and Hang Seng are down -1.0% on growing Coronavirus worries but also on worse than expected data out of Japan and China. The boost may be coming from the latest data out of South Africa that suggests that there is no reason to “excessively worry about the Omicron variant” of the coronavirus, according to South Africa’s Health Minister Joe Paahla. “We expect this variant to behave in a manner similar to previous strains,” adding that the most recent research hints that Omicron-caused symptoms “seem easier to tolerate.”
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The GBPUSD is looking weaker again as it now trades below the monthly 20-period EMA, and the 50/200 EMA’s are both above the current price action. Trend followers will be looking for the momentum to keep prices below November’s low of 1.31935.
With the majority of retail traders bullish the GBPUSD I would foresee lower prices in cable until the ActivTrader sentiment indicator levels out or turns bearish.
The forex heatmap doesn’t show any kind of risk direction this morning but the fact that the Aussie and CAD are doing relatively well and that the yen is among the weakest of currencies I would expect equities to bounce and unwind the overnight price action.
The focus for the euro will be a speech that ECB President Lagarde gives today and then the rest of the world will be focusing on the US CPI print coming out this afternoon. There has been some foreshadowing of the inflation data from some top officials including President Biden. We have been told to consider that the latest CPI reading won’t include the recent drops in energy prices. Which is another way of saying the data doesn’t reflect the ‘transitory’ inflation as Fed Chair Powell retired that word.
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If we do see a rise in the CPI the initial reaction will be for the markets to price in a rate hike, which includes the US 10-year yields rising. The USDJPY had been tracking the US benchmark yields and is currently looking likely to remain in the uptrend. What traders need to consider is the fall in energy prices and whether they will stabilise now. Plus the build-up in inventory as that is a sign of a lack of demand or possibly a lack of drivers to distribute the goods. That data when it resolves itself will be key to how well the global economy is doing currently.
