UK Industrial Production (OCT) (9:30GMT; 4:30EST) MoM YoY Actual: -0.8% 0.6%Expected: 0.1% 1.6%Previous: 0.1% (RL) 0.7% (RH)
How Did the Markets React?For the most part, UK markets ignored the release of industrial sector data this morning, with the exception of the FX markets. Pound Sterling continued to ease lower on the data after reaching multi-year highs last Friday. Industrial and manufacturing sector output was much lower than expected in October as a stronger pound limited demand for exported products. Oil and gas led declines at -2.6 percent, bringing the annual rate of production to drop a whopping 10.7% over the last year. Meanwhile, mining and quarrying also dipped at a rate of 2.3 percent during the month and posted an annual figure of -10.1 percent. Overall, the data does not bode well for the sector at all and highlights the extremely fragile nature of its growth. Furthermore, the data will likely have a negative impact on GDP for Q4. Bonds – UK 10-Year GiltsPrices on UK 10-year gilts were little changed throughout the trading session at 96.18, despite the significant drop in industrial output in October, as yields were down slightly to 4.487 percent. With a Bank of England rate decision due out on Thursday, markets are estimating that the central bank will maintain a steady hand and keep the benchmark at 5.00 percent after hiking 25 basis points last month. Furthermore, the decline in industrial production will have little effect on MPC’s decision, as monetary policy action is unlikely to even be considered until mid-2007.
FX – GBP/USDWhile the release of dismal industrial production figures sent Cable plummeting to a session low of 1.9628, declines of GBP/USD had already begun a half hour earlier as EUR/GBP bounced higher from .6741. The EUR/GBP cross’s move was initiated by strong retail data for the Euro-zone at 9:00GMT, sending pound’s weakness to feed into the GBP/USD pair. However, UK shop prices helped cap losses for Pound sterling, as the figure increased in the month of November and could indicate that inflation pressures are slowly building for the retail sector. Additionally, today marks the third day in which the GBP/USD pair has slowly drifted lower from last Friday’s multi-year high amidst mild greenback strength and overbought conditions.
Equities – FTSE 100 IndexUK equities traded in positive territory this morning, with the FTSE 100 up 13.5 points, or 0.2 percent at 6,099.9 by mid-morning. The gains has little to do with economic releases out of the UK, however, as the marked drop in industrial production in October does not bode well for either manufacturers who have cut output or broader economic growth in the UK. Instead, the rise in equities in the UK was led by Royal Bank of Scotland Group, after it posted an upbeat trading statement that brought its shares to gain 3.4 percent to 19.03 pounds. Meanwhile, miners were boosted by firmer commodity prices as shares of Antofagasta climbed 1.4 percent to 536½p while Lonmin gained 1.4 percent to 32.12 pounds. In the mid-caps, Biffa put on 2.9 percent to 275¾p after the waste management company announced an almost 20 percent rise in first-half profits and said it anticipates a continuation of the trends experienced over the period.