Market Waits On Fed And Bernanke, Again
Jeremy Cook | Jul 10, 2013 07:00AM ET
Hopes of a run higher for GBP versus the USD were dashed yesterday by a real shocker for manufacturing production, which knocked back any recent good sentiment towards the UK. Industrial production fell by 2.3% against the same time last year, whilst manufacturing production was 2.9% lower. It now looks like manufacturing will provide little to no positivity towards UK GDP in Q2. We have pencilled in a provisional 0.6% of growth on the quarter and yesterday’s publication of the National Institute of Economic and Social Research growth estimate matched ours.
Despite this, and BBC News Channel viewers will have heard me say this yesterday, the sole purpose of economic forecasting is to make astrology looks respectable. This is especially true when looking at the thoughts of the IMF.
Britain was the sole country that saw this or next year’s growth expectations held or increased i.e. not downgraded. According to yesterday’s release the UK economy will grow by 0.9% this year and 1.5% in 2014. While I think that this year’s number is right, next is very much above our expectations and will likely be revised lower as we move through the coming 12 months. Just to demonstrate how much these numbers can be revised; the Office of Budgetary Responsibility’s prediction for 2013 back in 2011 was for growth of 2.1%; we’ll be lucky to get 1/3rd of that.
The IMF did cut the US growth estimate for 2013 to 1.7% from 1.9% at its April meeting, with the 2014 estimate also falling by 0.2% to 2.7%. The Euro area is expected to remain in a deeper recession this year (-0.6%) and then miraculously improve by 0.9%.
It wasn’t just GBP weakness that took GBPUSD through its yearly low yesterday but also further USD strength following comments from an ECB member in an interview with Reuters. Jorg Asmussen told reporters yesterday that the ‘forward guidance’ of low rates that Draghi spoke of in last Thursday’s ECB press conference went ‘beyond 12 months’. Draghi had initially refused to comment. The ECB attempted to row these thoughts back afterwards, but as always, the damage had been done.
The euro was hurt more than sterling however, and hence the pop higher in GBPEUR.
Overnight, the chances of a positive open for European markets has been smoked by poor Chinese trade data that showed both imports and exports unexpectedly declining. Exports had expected to be weaker than previous numbers given the weakness in global aggregate demand and import was always liable to a slowdown in native demand. These falls are precipitous however.
While the data calendar is light today, participants will be looking forward to tonight’s FOMC minutes publication that will shed light on dissenters and through what kind of prism the Fed is viewing recent market movements through. Bernanke speaks this evening as well and although his speech is more of a history lesson at a university the Q&A session will be monitored for signs of vacillation or confirmation towards tapering
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