Friday AM: GBP Eyes Data Dump | USD: Price Data | EUR: Outperforming | AUD: Digesting SoMP

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Markets are decidedly mixed into the weekend with Asian stocks pulling back from one-month highs as the Federal Reserve looks set to deliver another interest rate hike next month, paring gains made earlier this week after U.S. midterm elections triggered a global equities rally.

Sentiment is in turn weighing on the likes of the Australian and New Zealand Dollars as well as emerging market currencies such as the South African Rand.

However, other analysts are suggesting the sombre market mood in fact lies with China, and not the U.S.

A note from the DNB currency desk says the attempt by Chinese authorities to support economic growth are having mixed effects on local bourses.

Stocks are markedly down this morning, driven by financials as the authorities are giving banks orders to increase lending to private companies.

The Euro appears to be enjoying a bout of strength which could be expected as the currency has been the G10 laggard of the past month and therefore a 'reversion to mean' is due.

GBP

We have a slew of numbers out of the U.K. at 09:30 G.M.T. today that should tell us how the economy is looking heading into the final stage of the year.

With the Eurozone economy slowing down, markets will be looking for any contagion effects while economists also expect anxiety over the final stages of Brexit negotiations to be having an impact.

The key release to watch is the monthly GDP release which is forecast to show growth of just 0.1%, a slight improvement on the previous month's 0% outcome.

The monthly GDP number, measured on a rolling 3-month-by-3-month basis is forecast to read at 0.6%.

A beat or miss could well boost or weigh on Sterling into the weekend.

Quarterly GDP numbers are also out with markets looking for a decent 0.6% quarter-on-quarter growth rate to be reported for the third quarter 2018. Annualised growth is forecast to read at 1.5% for the quarter.

Also out are industrial and manufacturing production numbers.

Industrial production for September is forecast to read at -0.1%, manufacturing production is forecast to read at 0.1%.

There will also be trade numbers to digest with a trade deficit of £11.40BN being forecast for September.

The trade deficit tells us just how much the U.K. relies on the inflow of foreign capital to 'balance the books' and prop up the value of Sterling. A key anxiety of analysts since the E.U. referendum is that the U.K. becomes less attractive to foreign capital which would in turn see Sterling left vulnerable.

Any improvement in the country's trade position will leave Sterling less exposed to any drying up of foreign capital inflows.

USD

The Dollar will be subject to the release of PPI inflation data; this should give a steer as to where the more important CPI inflation data is heading.

PPI for October is released at 13:30 G.M.T. and is forecast to have grown 0.2% month-on-month in October.

Any miss might have a momentary impact on the Dollar, but because the currency remains in a bull market we see little chance of any negative data reading having a lasting impact.

Overnight, the Federal Reserve unanimously decided to maintain the target range for the federal funds rate at 2.00 to 2.25 per cent at the FOMC meeting that concluded yesterday.

There were no revised forecasts or press conference with only minor changes to the wording of the statement.

Market focus had already started to shift to the December meeting and yesterday’s meeting provided very limited new information or additional guidance.

The outcome was expected and therefore the impact on USD was largely negligible.

EUR

As mentioned the Euro is looking firmer ahead of the weekend as traders unwind some of those negative bets that have made the currency the G10 underperformed for the past month.

There is no discernible trigger to the outperformance, and if anything the mood music for the Euro remains rather sombre.

According to Richard Grace, an analyst with Commonwealth Bank of Australia, markets will continue to overlook yesterday’s positive macroeconomic assessment from European Central Bank  President Draghi speaking in Dublin.

Instead investors Grace argues investors appear to be focussed on his warning regarding looming threats to financial stability. In particular, his comment that the Eurozone financial environment had become “somewhat more challenging” in recent months because of Italy’s budget and international trade tensions," says Grace.

"It is possible both could weigh upon both the ECB policy profile but more‑likely near‑term EUR sentiment," says Grace.

Markets appear to have discounted Draghi's assertion that the Eurozone’s economy “remained on track” and instead placed greater emphasis on Draghi's financial stability concerns.

"Equally, concerns surrounding Italy’s budget submission to the European Commission on Tuesday could be lending some internal weight to EUR," adds Grace.

AUD

The Australian Dollar rally has paused in line with softer Asian markets.

Domestically the Reserve Bank of Australia's Statement on Monetary Policy was released overnight.

The quarterly SoMP is being digested as having been broadly positive.

"The flavour of the report suggested the RBA is more confident about the Australian economic outlook. This confidence is reflected in the upgrades it made to its forecasts for both GDP growth and underlying inflation. Moreover, the central bank now expects the unemployment rate to fall further in the future. Indeed, in 2020, the unemployment rate is projected to have a ‘4’ in front of it," notes Besa Deda, Chief Economist with St. George Bank in Sydney.

However, core inflation forecasts are barely changed which suggests markets won't be in a rush to price in an interest rate rise at the RBA anytime soon.

"We continue to maintain the Reserve Bank will leave its powder dry for the remainder of this year and the two years that follow," says Deda.

This largely explains the sanguine reaction of the Aussie to the otherwise positive report.

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