GBP Indus Prod Disappoints; Trade Deficit Is Next

Markets consolidate large moves; British industrial and manufacturing production disappointed; Chinese CPI soared; Swiss deflation steady. Focus turns to trade deficit from US and Canada.

The common currency consolidates yesterday's gains and continues to trade near session highs. Other majors declined slightly against the buck. European equity indices are trading little changed and JPY leads while NZD lags.

GBP weakened after British industrial production disappointed as it grew only 0.3% in November while the market expected 0.8% growth. October's result was revised lower to -0.9%. Manufacturing production fell 0.3% from previous -1.3%. MNI reports that IP was driven by reopening of key oilfields and oil and gas extraction rose full 11.3%. GBPUSD trades around 1.6115 and EURGBP around 0.8125.

In other news, Chinese annual CPI soared in December to a seven month high at 2.5% from prior 2.0%; Swiss annual CPI remained at -0.4% and German finance minister said he saw a marked GDP drop in Q4 2012 but expects a significant improvement over 2013.

Italy reached a full take up as it sold 2015 and 2017 bonds totaling EUR 5 bln. The 2015 bond sold with markedly lower yield and higher bid to cover.

The US session begins at 8:30 am ET with trade deficit that is expected to narrow slightly in November to USD 41.1 bln from prior deficit USD 42.2 bln. Import prices are anticipated to grow 0.1% after declining 0.9%.

GBP volatility could heighten at 10:00 am when NIESR releases its December GDP estimate. Estimates are not available and November's result was 0.1%.

Canadian trade deficit that is due at 8:30 am ET is seen inching wider to CAD 0.3 bln from prior CAD -0.2 bln.