parmveer.sunnar's picture

Trending Economic: Morning Brief (21 October 2015)

With relatively little data overnight markets remain fairly quiet going into the London session, however volatility is expected to pick later in the U.S session as data flows increase.

Although with regards to Japan, data overnight showed that the trade deficit had widened (unexpectedly as the market anticipated a surplus), specifically the September trade deficit came in at -114.5 billion.  This weakness is being attributed to weak export growth which came in at 0.6% y/y. Therefore the JPY remains firmly bearish and we expected further downside leading into the key BoJ meeting on 30th October.

Markets have now been given time to soak in the news of the Canadian elections and this has caused the CAD to firm somewhat. The Liberal Government’s promise to increase spending is being taken positively by the markets as it is now hoped that this will limit the need for the BoC to increase monetary stimulus in the economy. In a bid to stimulate the flagging Canadian economy, the new leader, Trudeau has promised voters that he will run a deficit for three years in order to boost infrastructure spending. However there is the obvious policy lag with such measures and further rate cuts cannot at this stage be ruled out. Importantly today will see the release of the Overnight rate by the BoC (1400GMT) with market expectations of no change at 0.50%, the rate statement and Monetary Policy report will also be released at the same time. The BoC press conference will start at 1515GMT.

Sterling is also holding firm as of recent as it is trading close to four week highs against the Greenback, as recent comments by BoE’s Mccafferty pointed towards normalisation of monetary policy. It is also the case that Chinese President Xi Jinping began visiting the UK on Tuesday and a number of high profile business deals are expected to be agreed upon, potentially worth billions for the UK economy. The main data release for the UK today is Public Sector net borrowing (0830GMT) with expectations of a release around 9.1B vs. 11.3B previously.  BoE Governor Carney will also be speaking today at the Cairncross memorial lecture in oxford (1700GMT).

In the energy sector Oil Inventories will be released today (1430GMT) and expectations are of a release around 3.5M vs. 7.6M previously. Recent data has shown that Russia supplied record volumes of crude to China in September, knocking Saudi Arabia off the top spot meaning that Russia is now China’s top supplier.  Specifically according to Reuters China purchased 4.043 million tonnes of Oil from Russia in September an increase of 42% from last year. On the other hand Imports from Saudi Arabia dropped 16.5%. It was also announced by the Worlds largest Oil trader (Vitol) that it sees crude struggling to get over $60 a barrel next year and that global oil demand in 2016 is expected to hit 1.35 millions barrels per day, a significant drop off from this years expected growth of 1.7 million barrels per day.