Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Nov 11 08 07:50 GMT |

Overview & economic commentary UK retail sales fell in October according to the BRC survey released earlier this morning. Annual like-for-like sales dropped 1.5%, extending declines to a third successive month. The RICS survey of house prices revealed a further drop in transaction volumes through October, though new buyer enquiries and sales expectations picked up. The net price balance improved a shade to -81.8 vs -84.5. UK foreign trade figures for September will be published later this morning and are forecast to show a slight narrowing in the global deficit to £8.0bn from £8.2bn in August. It will be interesting to see what happens to exports following the sustained 9% fall in the value of trade-weighted sterling since the middle of Q3. The less favourable international trading environment as a result of weakening global demand has led to a slowdown in annual UK global exports growth from over 20% in July to 14% in August. We suspect that more bad news could lie ahead in the coming months as a recession in the euro zone, the UK's biggest export market, weakens demand for UK goods and services. The car industry in particular is likely to be hit by falling sales. The DMO will sell £3.5bn worth of gilts with a 2015 maturity this morning. In the euro zone, our forecast of a stabilisation in the German ZEW index of economic confidence in November is based on the ECB rate cut last week and the prospect of more monetary easing in December. The 20% rebound in the Dax from the October low may also have tempered pessimism. US markets are closed today for Veterans' Day Currency commentary Sterling clawed back some losses in Asia o/n, taking weak data reports on UK retail sales (BRC) and house prices (Rics) in its stride. Even though speculative short £/$ positions have been trimmed in the last few sessions according to weekly IMM flow data, it is difficult to see a substantial break to the upside as long as UK data surprises to the downside. Especially ahead of what may turn out to be a gloomy message by the BoE tomorrow, the risk is that £/$ slips back to below 1.55 over the next 24 hours or so. The same applies to €/£ where a test of 0.82 yesterday may well set the scene for a move up to 0.8250. Emerging market currencies have been relatively stable over the last few days (with the exception of E. Europe) and could well benefit from some return of risk appetite if G20 leaders agree on a global package to support the global economy. €/zloty and €/forint bounced yesterday to the highs since Oct 28 on high volatility. Major data and events today UK BRC retail sales monitor (00:01) Sep -1.1% Oct (actual) -1.5% UK RICS house price survey (00:01) Sep -84.5 Oct (actual) -81.8 UK Global visible trade balance (sa) (09:30) Aug -£8.2bn Sep (f'cast) -£8.0bn Median -£8.0bn Range -£8.5bn:-£7.7bn UK Non-EU trade balance (sa)(Sep (09:30) Aug -£5.2bn Median -£5.0bn Range -£5.4bn:-£4.7bn UK Official house prices (DCLG) (09:30) Aug Y-O-Y -3.4% Sep (f'cast) Y-O-Y -4.0% German wholesale prices (07:00) (11-16) Sep -0.6% Y-O-Y +5.8% Oct (f'cast) -0.5% Y-O-Y +4.7% Median -0.9% Range -2.3%:-0.3% German ZEW surey (10:00) Oct -63.0 Nov (f'cast) -62.5 Median -63.0 Range -81.0:-36.0 US Fixed income markets closed to observe Veteran's Day ECB member Mersch speaks (09:00) UK DMO auction of £3.5bn Treasury stock at 4.75% due Chart 1: UK exports have capitalised on weaker sterling, but falling overseas growth may now dampen demand Chart 2: Steep decline in new industry orders has caused economic pessimism to spread in Germany 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. 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