Market Drivers for November 6, 2013
UK IP/MP better sends cable to test 1.6100
Aussie tries for 9550 as risk flows modestly positive
Nikkei 0.79% Europe 0.70%
Oil $94/bbl
Gold $1318/oz.

Europe and Asia:
AUD Trade Balance -0.28B vs -0.51B
EUR Final Services PMI 51.6 vs. 50.9
EUR Retail Sales -0.6% vs. -0.3%
GBP IP 0.9% vs. 0.7%

North America:
CAD Ivey PMI 10:00 PM

Currency markets were generally quiet today with only second tier data on the docket making for lackluster trade as market participants squared up ahead of key events at the end of the week. Cable continued its recovery rally taking out the 1.6100 level on the back of better then expected Industrial Production.

UK Industrial Production rose by 0.9% versus 0.5% eyed – a sharp rebound from the -1.1% decline the month prior. Manufacturing production rose 1.2% versus 1.1% forecast. On the year the output rose 0.8% versus 0.7% projected.

The news from the manufacturing front is just the latest confirmation that UK economy is firing on all engines as it continues to demonstrate the best growth in the G-4 universe. Later today the market will get a glimpse of the NIESR GDP estimate and the forecast is likely to be revised higher from the prior reading of 0.8%.

The upside beats in UK economic data this week are likely to keep the BoE at bay at tomorrow’s MPC meeting. Market consensus expects both rates and QE level to remain stationary and it will be interesting to see if UK monetary officials adjust their statement to reflect the recent improvement in economic activity.

The BoE has been uniformly dovish in its policy stance over the past several months even as UK economic performance has continued to surprise to the upside. If the MPC members begin to move to a more neutral position the pound could rally further and may test the recent swing highs above the 1.6200 level.

The euro meanwhile continued to languish near the 1.3500 level, but was off its lows as it maintained support at 1.3450. The news from the region was mixed with the final PMI Services reading printing at 51.6 versus 50.9 but the EZ Retail Sales contracting by -0.6% versus -0.3% eyed. It is becoming increasingly evident that final demand in the EZ remains anemic and the recovery is stalling to a standstill. There is therefore rising pressure on the ECB to ease monetary policy further and some market analysts expect the central bank to drop its key lending rate by 25bp to 0.25% at tomorrow’s meeting. Such a move would no doubt push EUR/USD lower but given the cautious nature of ECB it is far from certain that they will act.

Meanwhile in North America today the US calendar is barren with only the CAD Ivey PMI on the docket. Currency markets may take their cue from equities and if risk flows improve as the day proceeds USD/JPY which has been well supported at the 98.50 level could try to mount another run at the key 99.00 level.

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