The pound utterly crushed all opposition during today’s morning London session, thanks to the better-than-expected reading for the U.K.’s Q3 GDP growth.
The persistent risk-on vibes, meanwhile, meant that the safe-havens yen and Swissy were particularly vulnerable to the pound’s onslaught.
- UBS Swiss consumption indicator: 1.56 vs. 1.50 previous
- Credit Suisse economic expectations: 32.0 vs. 28.0 previous
- German IFO current conditions: 124.8 vs. 123.5 expected, 123.6 previous
- German IFO business climate: 116.7 vs. 115.0 expected, 115.2 previous
- U.K. preliminary Q3 GDP q/q: 0.4% vs. 0.3% expected and previous
- U.K. preliminary Q3 GDP y/y: 1.5% as expected, same as previous
- BOC statement and presser later
U.K. GDP beats expectations
The Office for National Statistics (ONS) released the preliminary reading for the U.K.’s Q3 GDP growth earlier today. And it was good… for pound bulls anyway.
You see, the U.K. economy was revealed to have grown by 0.4% quarter-on-quarter in Q3, which is a stronger rate of expansion compared to the consensus for a +0.3% read.
More importantly, the +0.4% reading is faster than the BOE’s forecast of +0.3%, as laid out in the August Inflation Report.
And that plus the fact that CPI increased by 3.0% year-on-year in September, which is faster than the BOE’s forecast of +2.8%, likely stoked expectations that the BOE may hike rates as early as next week’s BOE statement.
Going back to the GDP report, the year-on-year reading came in at 1.5%, which is the same pace as in Q2 and is within expectations.
Oh, do note that this is the preliminary reading, so only the output approach is used to estimate GDP.
Having said that, the details of the GDP report showed that 9 out of the 10 major industry groups printed growth in Q3, with the construction industry being the only loser (-0.7% vs. -0.5% previous).
And of those 9 industries that showed growth, 6 reported even stronger readings, with the 1.0% quarter-on-quarter surge in manufacturing output being the most noticeable (-0.3% previous).
David Davis Speaks
U.K. Brexit Secretary David Davis spoke before Parliament today. And he dismissed E.U. Barnier’s claims that a trade deal will take “several years” to finish while reassuring the U.K. Parliamentary Committee when he said that:
I would be aiming to get certainly the outlines of it agreed, if we could, in the first quarter (of 2018) … but it’s a negotiation.”
Davis also reminded Parliament that many E.U. countries have “really serious investment” in the U.K. so it would be in the best interest of these E.U. Member States to quickly hammer out a deal.
Moar risk-taking in Europe
Risk-taking is still the name of the game in Europe during today’s morning London session. And as usual, market analysts attributed the risk-on vibes mainly to positive Q3 earnings reports for European companies.
- The pan-European FTSEurofirst 300 was up by 0.23% to 1,535.23
- Germany’s DAX was up by 0.04% to 13,018.25
- The blue-chip Euro Stoxx 50 was up by 0.22% to 3,621.50
Global bond yields surge
Another sign that risk-taking was the dominant sentiment during the morning London session was the broad-based surge in global bond yields.
- German 10-year bond yield up by 4.44% to 0.494%
- French 10-year bond yield up by 2.52% to 0.902%
- U.K. 10-year bond yield up by 4.50% to 1.417%
- U.S. 10-year bond yield up by 1.82% to 2.450%
- Canadian 10-year bond yield up by 1.40% to 2.093%
Major Market Mover(s):
The pound ruled over all during today’s morning London session. Nothing even comes close. In fact, the pound is now the one currency to rule them all for the day (so far).
And the pound’s surge was apparently a bullish reaction to the U.K.’s Q3 GDP report since it beat the market’s expectations, as well as the BOE’s own forecasts. And the details were pretty good as well, which likely stoked expectations that the BOE will sound hawkish (or even hike) in next week’s BOE statement.
GBP/USD was up by 136 pips (+1.04%) to 1.3256, GBP/JPY was up by 177 pips (+1.19%) to 151.17, GBP/CHF was up by 142 pips (+1.09%) to 1.3145
CHF & JPY
There were signs that risk aversion was making a comeback late into the session, but risk-taking prevailed for the most part, which is very likely why the yen and the Swissy were especially vulnerable to the pound’s bullish onslaught.
USD/JPY was up by 17 pips (+0.15%) to 114.05, EUR/JPY was up by 40 pips (+0.30%) to 134.34, AUD/JPY was up by 11 pips (+0.13%) to 88.02
USD/CHF was up by 7 pips (+0.07%) to 0.9919, EUR/CHF was up by 23 pips (+0.20%) to 1.1681, AUD/CHF was up by 4 pips (+0.05%) to 0.7654
Watch Out For:
- 12:30 pm GMT: Headline (1.0% expected, 2.0% previous) and core (0.5% expected, same as previous) readings for U.S. durable goods orders
- 1:00 pm GMT: U.S. HPI (0.4% expected, 0.2% previous)
- 2:00 pm GMT: BOC monetary policy decision and statement (overnight rate steady at 1.00% expected); you can read up on Forex Gump’s preview here
- 2:00 pm GMT: U.S. new home sales (555K expected, 560K previous)
- 2:30 pm GMT: U.S. crude oil inventories (-2.6M expected, -5.7M previous)
- 3:15 pm GMT: BOC presser
- 9:45 pm GMT: New Zealand’s trade balance (-$900M expected, -$1,235M previous)