Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Oct 07 08 08:05 GMT |

Overview & economic commentary Financial markets will continue to focus on unfolding events in credit and banking markets. Speeches by ECB President Trichet, ECB member Constancio, Fed chairman Bernanke and Fed member Stern, as well as the publication of the minutes of the 16 September Fed policy meeting, will be be gleaned for hints of interest rate cuts and/or further policy action. Economic data published today includes UK industrial and manufacturing output for August, which have declined in each month since March. We expect manufacturing output to have declined by another 0.1% on a monthly basis in August, representing a 1.5% annual fall, as surveys by manufacturing businesses have been very weak, see chart below. However, industrial output may have risen by 0.1% in August, leading to a reduction in the annual decline to 1.7% from 1.9% in July, due to stronger performance of the energy industries. US consumer credit data is also due - we expect a borrowing figure of $6.5bn in August, compared with $4.6bn in July. Also published today, German factory orders may show 0.4% growth on the month, after eight consecutive months of decline. Overnight, the Reserve Bank of Australia slashed interest rates by 100bps to 6%, more than expectations of a half-point reduction, while Japan held rates at 0.5% as expected. Other data published this morning included the Japanese leading index and coincident confidence indices for August, both disappointing and providing further indication that Japan's economy is very weak Currency commentary The 100bps reduction in Australian interest rates overnight led to a fall in the A$/US$ to near 0.70, but it has since recovered to around 0.73, though still well down on last week's close of 0.7791. The Japanese yen fell overnight, reversing some of the sharp fall in $/Y yesterday, currently trading above 102. €/Y also pared some of yesterday's sharp fall to a 3-year low and is currently around 139.60. Germany factory orders are the key eurozone data release this morning, but markets will be looking to ECB speakers today. including President Trichet this afternoon, for further clues on whether interest rates may be reduced. The euro has also suffered from uncoordinated attempts by European governments to restore confidence in the banking sector. £/$ fell to a low of 1.7336 yesterday but is currently above 1.75, however weak industrial production figures this morning could weigh on the pound. £/€ rose to 1.2984 yesterday and is currently just below 1.29 Major data and events today UK Industrial production (sa) Jul -0.4% Y-O-Y -1.9% Aug (f'cast) +0.1% Y-O-Y -1.7% Median -0.2% Range -0.7%:+0.3% UK Manufacturing output (sa) Jul -0.2% Y-O-Y -1.4% Aug (f'cast) -0.1% Y-O-Y -1.5% Median -0.2% Range -1.0%:+0.1% US Consumer credit (sa) (20:00) Jul +$4.6bn Aug (f'cast) +$6.5bn Median +$5.8bn Range+$1.0bn:+$10.0bn German factory orders (11:00) Jul -1.7% Y-O-Y -0.7% Aug (f'cast) +0.4% Y-O-Y -4.6% Median -0.1% Range -2.2%:+2.5% Japan interest rate decision (04:00) Actual: 0.50% Forecast: 0.50% Previous: 0.50% Japan leading index (prel) (06:00) Jul 91.4% Aug (actual) 89.3% Median 89.2% Range 88.7%:89.3% Japan coincident index (prel) (06:00) Jul 103.5% Aug (actual) 100.7% Median 100.7% Range 100.0%:101.1% Australia interest rate decision (04:30) Actual: 6.00% Forecast: 6.50% Previous: 7.00% ECB member Constancio speaks in Lisbon (09:30) ECB member Ordonez speaks in Madrid (11:00) UK DMO to auction £1.2bn of 1.875% index linked bonds due 2022 (10:30) ECB President Trichet speaks in France (14:30) US Fed member Stern speaks in Chicago (16:00) US Fed Chairman Bernanke speaks in Washington (17:30) US FOMC release minutes from Sept 16 meeting (19:00) Chart of the day: Will UK official manufacturing output growth data continue to trend downwards as suggested by the PMI surveys? 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