UK growth to have slowed in Q3
For all the news reports and schadenfreude around the House of Lords voting down the government’s measures to cut working tax credits, the main focus today for UK assets is the first reading of Q3 GDP. Most commentators, ourselves included, believe that the UK economy has slowed somewhat from the 0.7% QoQ number that it was able to hit in Q2.
Industrial numbers have remained weak through Q3 but consumption has remained strong, although we did see a temporary blip midway through the quarter. Exports are said to be more difficult given the strength of the pound and the weakness in crucial export markets. As we get ready for Halloween, we think that today’s number is unlikely to send market observers scurrying behind the sofa but may give new voice to concerns around the imbalances in growth moving into 2016.
The number is released at 09.30 with markets looking for a QoQ number of 0.6% and a yearly number of 2.4%.
Markets happy to wait on rates
Sterling – alongside most G10 currencies – was quiet yesterday, with traders unwilling to throw too much at markets given the line-up of central bank policy meetings in the coming four days.
Overnight news from Asia has sent some risky assets lower as geopolitical concerns come to the fore. A US Navy ship’s patrols between two artificially created islands that are owned by China has angered Beijing, coming as it did on the first day of the yearly meeting of the Chinese Communist party’s Central Committee.
These sabre rattling exercises used to be more common and certainly hint that differences between the US and China remain great despite the recent visit of the Chinese Premier to Washington. AUD, NZD and other commodity currencies are lower this morning with yen gaining on the haven demand.
ECB Chief Economist hints at “no taboos”
Those riskier currencies may be bailed out pretty soon, however, given comments from the European Central Bank’s Chief Economist Peter Praet who has told reporters that there we “no taboos” in the bank’s recent easing discussions. The last time he said something similar was November of last year with looser monetary policy coming from the central bank at its December meeting. Comments that the European Central Bank may be delayed in hitting its medium-term inflation target of 2% will also increase market bets of some kind of policy shift on December 3rd.
Reports from China that the government is getting ready to announce a plan to inject pension funds into capital markets in 2016 with estimated size of 2 trillion RMB (£205bn) will also have the bulls salivating. We are expecting some form of stimulus from the Chinese Communist party’s Central Committee meeting as it concludes on Friday.
The day ahead
Away from UK GDP, US durable goods orders will give us a clue on how the US 3rd quarter ended, with growth expected to be around half of the UK’s.