Following Friday’s UK GDP data, which came in line with market estimates, market participants are likely to shift their focus to other macro releases going forward to gauge the nation’s economic growth during the fourth quarter.
The findings of the ECB’s stress test on Euro zone’s major banks showed that the capital shortfall in the region’s banking sector was not severe. However, with several lenders from Italy, Cyprus and Greece failing the central bank’s stress test, there are fears that the region’s banking system remains susceptible. Across the Atlantic, focus shifts to the upcoming FOMC meeting, wherein the central bank is widely expected to announce the winding up of its asset purchases programme.
Pound Sterling – UK Markets
Sterling gained ground against the greenback in Friday’s trading session following the release of the UK’s preliminary GDP data, which showed that economic growth in the nation was in line with market estimates during the third quarter. The services sector was a major contributor to Britain’s GDP growth during the quarter, while a slowdown in the nation’s manufacturing sector weighed on economic recovery. Although annual economic growth in the UK slowed slightly, its pace remained close to pre-recession highs. Market participants opined that this might not be sufficient to push the central bank to raise its key interest sooner than expected, especially after the minutes of the latest BoE policy meeting were largely dovish.
Traders will eye today’s speech by the BoE Deputy Governor, Nemat Shafik, for cues to the central bank’s monetary policy stance going forward. With no other domestic economic release scheduled today, market participants will look ahead to macro data in the US for further direction to risk appetite.
US Dollar – US Markets
The greenback is trading in a tight range against the majors this morning. Markit’s US services PMI report is scheduled for release later today. The report is anticipated to show that the pace of activity in the services sector slowed marginally in October. Market participants are likely to stay alert to today’s services data, especially after last week’s manufacturing PMI reading showed a more than expected drop for this month. Separately, another survey is expected to show that pending home sales rebounded in the US during September. This survey is likely to help investors gain a better insight into the nation’s real estate sector, particularly after signs of a volatile recovery in the housing market.
Moving ahead, the central bank is anticipated to announce an end to its bond purchase programme in its monetary policy meeting this week. However, it remains to be seen if the latest deterioration in the global economic environment prompts Fed policymakers to adopt a cautious approach.
Euro – European Markets
The Euro began the weekly session on a strong footing after results of the ECB’s stress test on major European banks revealed that the capital gap in the region’s banking system was not alarming. However, 25 banks that were part of the evaluation process, applicable for the period ending December 31, 2013, failed the comprehensive test of their financial safety and will need to raise €25 billion of fresh capital. The ECB indicated that of these 25 banks, 12 have already covered their shortfalls. Although the result underscores the region’s recovery from the debt crisis witnessed in recent years, deflationary threats in the region indicate that the Euro zone is not completely out of the woods.
The Ifo report for October released earlier today revealed that confidence among German firms deteriorated for a sixth consecutive month. The deterioration was worse than market expectations and in contrast to the latest PMI reports which had shown an expansion in the nation’s private sector activity. Market participants will keep a tab on the German inflation report later this week in order to gain initial insights to price trends in Europe for the current month.
Other Currencies – Highlights
The Japanese Yen is trading on a firmer footing against the greenback in today’s trading session. Data released earlier today showed that prices for corporate services increased in line with market estimates. Investors will keep a tab on this week’s Japanese inflation data to gauge if the central bank has moved any closer to its price stability target, especially after concerns were expressed by policymakers in the minutes of the latest BoJ policy meeting. The minutes had revealed that a few policymakers were concerned about the slowdown in inflation expectations in the nation.
Market participants will eye the Japanese retail trade numbers for September later today to get an insight into the nation’s health. Additionally, today’s preliminary US services PMI reading is expected to provide further direction to the US Dollar-Japanese Yen pair.
Sterling Rises on Hopes of EU Softening Tone on Backstop