Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Oct 29 08 08:34 GMT |

Overview & economic commentary This morning's focus will be on UK monetary data for September, including consumer credit, net mortgage lending and mortgage approvals. The consensus economic forecast is for mortgage approvals to have remained around the record low level of 32,000 in August. We are going for a slightly higher figure of 34,000 based on a rise from 21,342 to 23,422 in the narrower BBA measure published last week. Net mortgage advances could rise to £1bn in September from a very weak figure of £143m in August, but still sharply lower than last year's levels. Consumer credit growth may fall to around £0.9bn from £1.2bn in September. US data this afternoon includes durable goods orders for September, but this release will be overshadowed by anticipation of the Fed's interest rate decision at 18:15. Given recent weak data and comments from key policymakers it is very likely that the Fed will cut official rates by 0.5% to 1.0%. We expect the Bank of England and the ECB to also cut rates again at their respective meetings on the 6th November. Preliminary German CPI data will be released during the course of the day and is forecast to show a fall in annual CPI down to around 2.5% in October from 2.9% in September. Also, the Norwegian central bank is expected to cut rates by 0.5% to 4.75% at 12:00 today. This follows on the back of a 0.5% cut on October 15th, which represented the first reduction in rates since March 2004, as the global financial crisis and low oil prices take their toll on the domestic economy Currency commentary A buying spree should lift UK and European stocks this morning after an extraordinary session in the US boosted the Dow by 889pts. The Nikkei followed suit and is currently up more than 7% on speculation that the BoJ could cut interest to 0.25% on Friday. Buy the rumour, sell the fact? FX markets are forced to cover their $/Y shorts o/n, squeezing the pair up to a high of 99.70. We're well off the highs however as proft taking sets in and new long yen positions are initiated. The Fed rate decision later today is likely to keep participants on their toes. A 50bps cut is pretty much priced in, but could the de Fed deliver a surprise with a bigger move? We don't think a concerted central bank move (post G7?) is on the table. £/$ did well to extend gains o/n to 1.6218 but has settled back closer to 1.61 as European markets open. Breaching the 5-day MA is one thing, but to believe that an interim relief bounce is possible would require a move back up to 1.6570. Major data and events today UK Money supply, M4 (final, sa) (Sep) (09:30) Aug +1.5% Y-O-Y +11.5% Sep (f'cast) +1.4% Y-O-Y +12.2% UK Consumer credit (09:30) Aug +£1.2bn Sep (f'cast) +£0.9bn Median +£1.0bn Range +£0.8bn:+£1.2bn UK Net mortgage lending (sa) (09:30) Aug +£0.1bn Sep (f'cast) +£1.0bn Median +£0.8bn Range -£1.0bn:+£2.2bn UK Mortgage approvals (09:30) Aug 32K Sep (f'cast) 34K Median 32K RangeK 28K:35K US Durable goods orders (12:30) Aug -4.8% Sep (f'cast) +1.0% Median -1.0% Range -4.0%:+1.9% US FOMC interest rate decision (18:15) Current: 1.50% Forecast: 1.00% German CPI (07:00) (prel) Sep -0.1% Y-O-Y +2.9% Oct (f'cast) -0.1% Y-O-Y +2.5% Median -0.2% Range -0.3%:+0.1% Norwegian central bank interest rate decision (50bp cut to 4.75% expected) (12:00, news conference 12:45) US FOMC interest rate decision (50bp cut to 1.00% expected) (18:15) Chart a: UK mortgage approvals/advances are expected to have remained weak in September. Chart b: The US fed funds rate is widely expected to be cut by 0.5% to 1.0% this evening. Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. 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