Market Drivers for Jun 27, 2013
UK GDP surprises lower sending cable through 5300
GE labor demand remains strong
Nikkei 2.96% Europe -0.31%
Oil $95/bbl
Gold $1237/oz.

Europe and Asia:
NZD Trade Balance 71M vs. 412M
NZD NBNZ Business Confidence 50.1 vs. 41.8
EUR German Unemployment Change -12K vs. 7K
EUR German Unemployment Rate 6.8%
GBP GDP 0.3% vs. 0.3%
GBP Business Investment -1.9% vs. -0.4%

North America:
USD Personal Income 8:30
USD Personal Spending 8:30
USD Initial Jobless Claims 8:30
USD Pending Home Sales 10:00

Cable fell through the 1.5300 support level in morning London dealing after UK GDP figures disappointed the market showing that disposable income plunged the most since 1987 in the first quarter of the year. UK GDP printed in line on a q/q basis at 0.3% but on a y/y basis the number was revised lower from 0.6% to 0.3%.

Overall the UK data proved to be a negative shock as real household income fell by -1.7% from the previous three months while business investment declined by -1..9%. The news showed the extent of the hardship faced by UK consumers as the country’s economy continues to sputter five years after the financial markets crash.

Nevertheless, although Q1 data has been clearly disappointing the most recent economic releases from UK have shown considerable improvement suggesting that growth in Q2 will likely be much stronger. Therefore the currency markets were torn between trading the the disappointing past or the promising future. Cable slid to a low of 1.5265 in the aftermath of the news, but has since stabilized just below the 1.5300 figure as traders await the start of North American trade.

In Europe the news was considerably better with German unemployment figures showing that jobless rolls were pared down another -12K versus market expectations of an increase of 7K. The GE labor demand remains robust and that should help drive Europe’s largest economy higher in Q2 of this year. The news helped to steady the EUR/USD above the 1.3000 mark, but the pair remains in a downtrend with 1.3050 capping any upside action for now.

One nagging concern for the euro is the uptick in sovereign debt yields. Today’s Italian BTP auction of 5 and 10 year paper saw steady bid to cover ratios but the yields rose by 30-50 bps for the various tranches. While rates remain considerably lower than the spike highs from 2010, the rise in interest costs for the periphery economies which remain moribund is a clear drag on growth and spending and could become a real concern for the market if the BTP yield rises above the 5% mark.

In North America today the market will get a glimpse at the weekly jobless claims and the personal income and personal spending data. Expectations are for an improvement in both, and if the data proves positive USD/JPY – which has been above the 98.00 figure for most of the night could mount a challenge of the 98.50 barrier as traders begin to believe the US growth story.

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