Timizzer’s market update 9-Oct-2013

This morning sees the release of August data for UK manufacturing and industrial production, as well as external trade. Although somewhat erratic, manufacturing output growth has trended upwards since the start of the year and the recent strength of the sectoral PMI and CBI industrial trends report suggest that momentum picked up a little during August. We forecast a 0.4% m/m rise, up from 0.2% in July. This acceleration, alongside a strong rebound in energy output is expected to underpin a 0.5% pickup in industrial production.

Last month’s UK trade figures showed a sharp deterioration in the deficit to £3.1bn in July. However, recent surveys point to an August rebound in exports which should outweigh an expected rise in imports and see the shortfall narrow to £1.8bn. This is smaller than the £2.05bn consensus expectation. Externally, German industrial production data for August will be scrutinised closely following July’s unexpected 1.7% m/m decline which cast some doubts on the underlying strength of the Q2 recovery in euro area activity. Despite yesterday’s weaker than expected print for August factory orders, we expect industrial output to pick up by 0.8% m/m, although the risks are to the downside.

Finally, the minutes of the September 17-18 FOMC meeting will be pored over for the arguments surrounding the Fed’s decision not to embark on tapering. There may also be some insights into the Fed’s views on the potential fallout from the current budget impasse.Elsewhere Presidents Obamas choice of Janet Yellen as next governor of the Federal Reserve is leading to optimism that leading Asian economies may be spared the fallout from any immediate reduction of stimulus that could roil markets and capital flows. South Korea said it expects Yellen will “consider well” the effects on other nations of reducing U.S. bond-buying, while Koichi Hamada, an adviser to Japanese Prime Minister Shinzo Abe, predicted the new chairman won’t rush to exit monetary easing. HSBC Holdings Plc said her nomination gives Asian policy makers time to prepare for an eventual increase in U.S. interest rates. Asia is grappling with Fed policy shifts and the Group of 20 economies plans to identify market turmoil from central banks’ stimulus withdrawal as a key risk to the global financial system.

Emerging-market stocks and currencies plunged in May when Chairman Ben S. Bernanke signaled that record easing may be pared, then rebounded when the Fed maintained stimulus last month.

As the Fed’s No. 2 official, she has articulated the case for maintaining highly accommodative monetary policy. In a series of 2012 speeches, she outlined why interest rates could remain near zero into late 2015, and in a 2011 speech she justified the Fed’s first two rounds of large-scale asset purchases with an estimate that the programs would create 3 million jobs. purchases with an estimate that the programs would create 3 million jobs. purchases with an estimate that the programs would create 3 million jobs. U.S. President Barack Obama will announce the nomination at 3 p.m. in Washington on Oct. 9, If confirmed by the Senate, Yellen, 67, would succeed Bernanke, 59, whose second four-year term ends in January.

About Hetal Patel - Chief Editor, Europe

Hetal Patel has written 58 post in this blog.