Market Drivers for October 10 2014

UK CPI much cooler at 1.2% vs. 1.4%

GE ZEW plunges below 0

Nikkei -2.38% Europe -.24%

Oil $85/bbl

Gold $1233/oz.

Europe and Asia:

AU NAB Business Confidence 5 vs. 7

UK CPI 1.2% vs. 1.4%

EUR GE ZEW -3.6 vs. 0.2

EUR IP -1.8% vs. -1.5%

North America:

No Data

It’s been a very active session on European dealing tonight as weaker than expected economic results from both Europe and UK sent the euro and cable plunging against the buck while the yen continued to strengthen on risk aversion flows.

In UK the much cooler than expected inflation data sent the pound reeling with the unit plunging below the key 1.6000 support level in morning London dealing. UK CPI printed at 1.2% versus 1.4% eyed, pushed lower by food and transportation costs. This was the twelfth straight month that food prices have declined helping to put downward pressure on the overall index.

With price pressures non existent there is little reason to believe that the BoE would consider hiking rates anytime soon and cable tumbled in the wake of the news as markets quickly repriced their expectations. Although recent rhetoric from the BoE has been relatively hawkish, with Governor Carney noting that the central bank would move on rates irrespective of any political considerations, the latest economic data out of UK suggests that monetary policy will remain stationary for the foreseeable future.

Cable will now try to consolidate around the 1.5950 level as the day proceeds but unless UK data begins to show some upside surprises, the unit remains under pressure as the hope of BoE being the first G-7 central to hike rates begins to fade.

In Europe meanwhile the ZEW survey of investor sentiment slipped below zero mark for the first time in three years reflecting the near recession like conditions in the region. The ZEW dropped to -3.6 from 0.2 eyed as investor mood grew darker. The most recent data from Germany has colossally disappointing with factory order and industrial production all falling well short of expectations and the ZEW is starting to reflect the fact that even EZ strongest economy is now facing the prospect of negative growth.

ZEW President Clemens Fuest noted that given the current economic conditions the possibility of QE should be considered, but he also stated that the ECB is at the end of its policy options and that EZ governments should consider action. The euro shaved more than a cent as a result of this news which was further aggravated by weaker than expected Industrial Production data which printed at -1.8% vs. -1.5% forecast.

With no data in North American session today, traders will have plenty of time to mull over the overnight data. The net takeaway from today’s reports is that rates are not likely to rise anywhere in the G-7 universe any time soon, with EZ now facing the very real possibility of QE. That’s likely to keep both the dollar and the yen bid as risk aversion sentiments contonue to dominate.

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