Intraday Market Thoughts

Cable Corrects, China GDP Next

by Adam Button
Oct 18, 2016 22:57

A bump higher in UK inflation led to a climb higher in the pound on Tuesday it what could be the start of a retracement. The euro was the laggard on the day as it continues to struggle to make or hold gains. The focus is on a trio of Chinese data releases later, including GDP. The latest video for Premium subscribers, focusing on the existing trades ahead of the US presidential debate, UK and Aussie jobs and ECB conferece has been posted and sent.

UK CPI ticked above expectations at 1.0% compared to the +0.9% consensus but the higher result tapped into market angst about higher inflation due to a weak pound. The larger theme that could give the pound a lift is talk and speculation about softening the Brexit and the uncertainty around legal challenges.

On the day, cable climbed 110 pips at touched 1.2300 at the high from a low of 1.2171. That's a small bite out of the fall in the past two weeks but it illustrates how any good news from here could lead to some short covering in the crowded GBP-short trade. On the upside, even a recovery to 1.26 or 1.28 would change almost nothing in the underlying trend of GBP weakness.

In economic data Tuesday, US CPI met expectations at 1.5% y/y. It remains below target and inflation is not a main factor driving the Fed.

The lesser-touted release on the day was Canadian manufacturing sales, which were up 0.9% compared to +0.3% expected. That's notable because the BOC decision is on Wednesday. The stronger data fits in with a great Canadian jobs report and upbeat GDP. The market is short CAD but with oil strong, the government spending and data beating estimates, the risk is that Poloz returns to his usual optimistic self and boosts the loonie.

Before that, the focus shifts to China where Q3 GDP data is due at 0200 GMT. The consensus is for 1.8% growth q/q and 6.7% growth y/y. Those numbers may be skewed lower by the latest trade numbers, which were far slower than expected. If that's the case, watch out for risk aversion in Asia and Europe. Along with GDP, numbers on Sept retail sales and industrial production are due. Sales are expected up 10.7% y/y and industrial production forecast to rise 6.4%.

Act Exp Prev GMT
Gross Domestic Product
6.7% 6.7% Oct 19 2:00
CPI (y/y)
1.0% 0.9% 0.6% Oct 18 8:30
Manufacturing Sales (m/m)
0.9% 0.3% 0.1% Oct 18 12:30

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