UK GDP to slow slightly from Q2's peak

• Growth in the UK set to show at 0.7% level, down from 0.9%

• First case of Ebola diagnosed in New York City

• Chinese house prices disappoint despite stimulus

• Stress tests expected to show EUR25bn shortfall

Sterling remains resilient this morning following two pieces of negative data on Wednesday and Thursday and ahead of today’s GDP release at 09.30. We were incorrect in our thoughts on retail sales yesterday with the figure slipping by 0.3% on the month and only rising 3.0% on the year. It is perhaps no surprise that the recent weakness in the UK economy has found its way into the retail sector. Headwinds to the UK economy have increased in the past few months or so and the rate of output creation in the UK has slowed with it.

Last week, the British Retail Consortium reported that retail sales had fallen by 2.1% in September compared to the same month a year ago as the effects of the unusually warm beginning to autumn weighed on the demand for winter apparel. We saw similar effects in the ONS numbers. In all likelihood, the tip into proper autumn weather that we have seen in October should rebalance this number moving forward and we can but hope that the recent falls in energy and food prices increase marginal purchasing power of consumers as we head into the important Christmas period.

I think there’s no denying that the level of exuberance in the UK economy has slackened in the past 4-5 months. Far fewer people are getting overly optimistic about the state of the UK economy, which is in itself a good thing, but we must ward off becoming down-in-the-mouth about our economic prospects. Markets are looking for a 0.7% increase in output, down from the 0.9% in Q2. We had called the peak for UK GDP back in July and recent data has happily backed up that assertion. We have to remember that GDP is an historic figure in so much that we are nearly 1/3rd of the way through Q4 and we are only now receiving the initial reading of Q3 output.

Initial readings can be volatile but market forecasts are of between 0.6% and 0.8%. We are in the optimists’ camp once again and look for a figure at the top of that range.

Bonds and haven currencies are doing well this morning after news of the first reported case of Ebola in New York. A doctor who has been working in West Africa to combat the disease is now being taken care of in a hospital’s isolation ward. USDJPY has fallen back below the 108.00 level as a result.

News from China overnight has once again been negative and raises concerns that the frothiness of the Chinese economy may be coming to an end in spite of government funded stimulus efforts. New-home prices fell in all but one city monitored by the government last month even after constrains on property buying were relaxed amid a market downturn and tight credit. Prices dropped in 69 of the 70 cities in September from August, the National Bureau of Statistics said in a statement today, the most since January 2011 when the government changed the way it compiles the data. Prices fell in 68 cities in August.

Over the weekend, we should receive the details of the European Central Bank’s stress tests on the European banking sector. We are looking for an overall shortfall in funding to come in around the EUR15-20bn mark and that the majority of the pressures will be felt in the Greek, Cypriot, Portuguese, Spanish and Italian banking sectors. Anything less than EUR25bn and we think that the euro could open well on Monday morning.

I hope you have a great day and a better weekend.