UK data underwhelms sterling bulls

Yesterday’s market action

Yesterday’s session allowed European bourses to remain decidedly stalwart in the face of the US equity sell off we saw on the back of a stronger dollar and lower than consensus wholesale trade figures and higher than expected wholesale inventories. Higher inventories implies a higher retention in goods, implying a slowdown in the rate of sales or transfers. The lower wholesale trade figures represents the physical slowing of wholesale goods and therefore could be seen as a negative indicator for expansionary sales figures to come. Couple this with a stronger dollar and the slightly bearish bias to the range we’ve been in for the past few days it is clear why we have seen a lack of bullishness in the short term. Chinese Inflation figures came out overnight with a yoy build of 1.4%, beating the 1.3% expectation; this remains however below the PBOC’s target and the general consensus is that further stimulus is still possible. Asian indices gained on the day and allowed the US equity space to remain similarly bullish, or at least not-bearish. The S&P broke above the highs we have seen over the past few sessions and, as the index trades higher for the second consecutive session, we see the cash trading higher by 0.45%. In the currency space we saw a fall in the Euro of 1.13% against the dollar. This marks the 4 week. GBPUSD was similarly on the back foot and the trend lower in dollar pairs has continued through to this morning. In addition to this, we also heard that Apple is releasing a new watch; it’s a thing.

Today’s View

This morning was fairly light on data and we saw very little in terms of headline risk. We saw French Manufacturing Production post a lower number than expected with a reading of 0% against the consensus 0.6%. Spain posted a beat with 0.6% against the expected 0.1% but the main number of the day came from the UK. UK Industrial production disappointed alongside Construction Output. This negative print didn’t extend into Manufacturing production which posted an in-line number. This caused a hesitant push lower in GBPUSD as the bearish appetite across dollar pairs had nearly exhausted itself. We did after a brief ten minute pause see the effect of the negative print as participants began to push the pair lower. UK election opinion polls also assisted the sterling’s fall from its highs as Ed Milliband was reportedly pushing a 2 point lead. I guess we know which way the markets will be voting then. Ahead today we have the Import Price Index at 1330BST. This is likely to be lower in response to a stronger dollar allowing for cheaper imports but this is a tier 3 data release at best. Trader are advised to remain cautious going into the weekend on the back of the dollar-strength overextension and any de-risking plays in European and US bourses.