Breaking News

Sterling Extends Thursday's Recovery; U.S. Data Awaited

By Marc ChandlerMarket OverviewOct 13, 2017 06:26AM ET
Sterling Extends Thursday's Recovery; U.S. Data Awaited
By Marc Chandler   |  Oct 13, 2017 06:26AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

The EU's leading negotiator whipsawed sterling yesterday. The net effect was to ease fears that the UK would leave the EU without the agreement Initial concerns that the negotiations had stalled sent sterling to nearly $1.3120

The willingness to discuss a two-year transition period spurred sterling's recovery. After trading on both sides of Wednesdays, closing on its highs was a bullish technical signal and there has been follow-through buying today. It is approaching a 50% retracement of the decline since late September. It is found near $1.3345, which also corresponds to the 20-day moving average. Next week, the UK reports CPI, retail sales, and September labor report. The market is pricing around a 75% chance of a rate hike next month and next week's data will impact the expectations.

Today's US data will likely determine if the dollar's heavy tone this week is more corrective after a strong September or if this year's downtrend is resuming. We suspect that both retail sales and CPI could surprise on the upside. Some of the strength we expect will reflect the headline reports, but the key to the markets' reaction will be in the core rate. The median Bloomberg forecast is for a 0.2% rise in core CPI. That would match the August increase and be the best two month gain. The year-over-year rate is expected to move higher for the first time since January.

The headline retail sales likely rose sharply. It will be bolstered by the strong auto sales and higher gasoline prices. Excluding these two items and building materials, retail sales may rise 0.4%, which would fully offset the 0.2% decline seen in August. As we saw with autos, the storms are creating a demand shock for some goods, some of whom are in sectors where inventory levels were tight before the storms.

The December 2017 Fed funds futures yield is unchanged from the end of last week at 1.265%. Our work suggests fair value, assuming a 25 bp hike in December is 1.295%. The December 2018 Fed funds contract's implied yields are off for the week to 1.635%, which suggests that the market is just shy of discounting a single rate hike next year.

Turning to Asia, China reported its September trade figures. The overall trade balance fell sharply to $28.5 bln from almost $42 in August. Both exports and imports rose. Exports rose 8.1% year-over-year, which was less than expected, though an improvement from the 5.6% in the year through August. Imports rose 18.7%, accelerating from the 13.5% pace in August. In addition to the increase in trade, a couple of details stand out. China's bilateral trade surplus with the US rose to a new record ($28.1 bln). China's exports to North Korea fell. Arguably more important than the slower exports, China's imports from North Korea fell nearly 38% from a year ago.

Japan's Ministry of Finance confirmed that foreign investors returned to Japanese equities. Foreign investors had been selling Japanese equities since July but were net buyers in the last week of September (~JPY954 bln). MOF data showed foreign investors bought about JPY1.23 trillion of Japanese shares last week, which appears to be the most on four years.

The dollar slipped to JPY111.85, which is the lowest level since September. However, greenback recovered in the European morning as US yields also rose. Initial resistance is seen around JPY112.40. The US 10-year yield is edging higher for the first time in three sessions. The yield peaked a week ago near 2.40%, which capped US benchmark yield over the past six months. The dollar-yen exchange rate is particularly sensitive to US 10-year yields. There is a $579 mln option struck at JPY112.50 that will expire today. There is also a 513 mln euro option struck at $1.18.

Ahead of this weekend's election in Austria, the equity market has advanced nearly 0.8% today. Coming into today's session is was flat in the week. The Dow Jones Stoxx 600 is up about 0.5% on the week. The government's benchmark 10-year bond kept pace with Germany this week.

Sterling Extends Thursday's Recovery; U.S. Data Awaited
Sterling Extends Thursday's Recovery; U.S. Data Awaited

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email