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The Week Ahead

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Britain under water, how about the US?

Mon, Oct 26 2009, 14:09 GMT
by Przemysław Kwiecień

X-Trade Brokers, XTB

A couple of months ago early indicators, especially PMI indices pointed to a vital recovery in the British economy. Despite those encouraging signs, Bank of England’s monetary council remained pessimistic and the GDP figures for the 3rd quarter confirm they had a point there. While the British GDP data caused a significant depreciation of the pound, their impact on broader market was marginal. The US GDP advanced release might be a different story.

According to a preliminary release the British GDP in the 3rd quarter contracted by a 0,4% q-o-q, stunning market observers anticipating a 0,2% rebound. A precise breakdown is yet to be released but we already known that a downturn continues in both industry and services. The release reignited a talk of further monetary expansion right after the market turned around pricing in a halt to further bond purchase increases (and sending the pound much higher). The GDP release signaled that a reversal on the GBPUSD came too soon and sent the pair back to 1,6250-1,63 with a potential for further declines (even back to 1,57).

While the British GDP release had powerful influence on the pound, they left other major markets nearly intact. This will not happen, if the surprise comes from the US GDP advance release scheduled for Thursday. Expectations for the figure are high, as the GDP showed signs of stabilization already in the second quarter – the headline figure was -0,7% annualized but for instance services already expanded by 1,5%. This time the market consensus stands for 3,1% annualized (ca. 0,8% q-o-q) on a hope of restocking and further expansion in services. With a traditionally high surprise potential in the data and a tense situation on both major stock indices and the EURUSD, the week looks interesting, especially as the calendar contains some more interesting figures as well (Conference Board on Tuesday, durable orders on Wednesday, UM index on Friday). While the EURUSD managed to climb slightly above the 1,50 psychological barrier, further advances are subject to the 1,0 level on the USDCHF and this one remains firm.

Published on  Mon, Oct 26 2009, 14:11 GMT