Today is quite an important day for Cable traders, with the release of a host of important economic data all at the same time during morning trading.
It would be surprising if the market didn’t get some extra volatility right after the data release. Of all the data, the one that’s probably going to get the most market attention is the GDP figure for November. Manufacturing Production will be taking second place.
Now that the UK seems pretty firm on the road to leaving the EU, the general uncertainty from the last couple of months seems like a fading memory.
Nevertheless, the data is still relevant for forming market expectations. And there are some important things to keep in mind when it comes to the data about to be released!
Less Optimistic Outlook for GDP
The data coming out includes the monthly GDP growth figures for November. This, we must remember, was the month before the General Election.
With the campaign in full swing and uncertainty rampant regarding the outcome, many businesses were holding off on investment plans until the outlook cleared. This was also before global trade tensions eased.
Consequently, most analysts have a pessimistic outlook for the results, ranging from contraction to, at best, breakeven.
The consensus metric is that November GDP will come in at 0.0% growth. This would e similar to the 0.0% recorded in the prior month. A result like this would affirm projections that the UK remained pretty much stagnant during the Q4.
This is especially true since most lift-off following the General Election would be postponed due to the holidays.
Note that this isn’t the official measure! However, it’s fairly accurate and we would typically expect the market to react accordingly.
Industry Not in the Best Shape, Either
Following in that vein, expectations are for December Manufacturing Production to reverse just slightly at 0.2%, offsetting the -0.2% registered in the prior month.
Many firms closed their doors or suspended production during the last months of the year. This phenomenon contributed to the negative results.
On an annualized basis, this would bring industrial production to -1.2%, from -1.6% prior. Though the projection is for this series to improve during the first quarter of this year.
We can expect the broader measure of Industrial Production to improve by 0.1%, not enough to counteract the -0.2% in November.
And a rate cut?
Markets were surprised when Mark Carney last week mentioned the possibility that the BOE saw weakness in the economy in the first quarter this year.
Poor performance in GDP figures today could strengthen the case. Already, the estimates are for a 50/50 chance that the BOE will cut rates over the next three months. This is a substantial increase from just a third of economists predicting a move previously.
In addition to today’s data, we want to pay close attention to CPI figures coming out on Wednesday. This ought to be a fluid week for the pound!