In line with the market expectations, the UK’s gross domestic product printed a 0.5% expansion on the third quarter second read, the year-over-year expansion steadied at 2.3%. The government accelerated its spending to 1.3%q/q, the capital expenditure increased by 1.3%q/q and the total business investments grew by an encouraging 2.2%q/q.
On the back of the coin, the stronger pound had a visible impact in narrowing trade terms. Exports slowed to 0.9%q/q from 1.9%, while imports reversed course and surged to 5.5%q/q from -2.7%.
Referring to Chancellor Osbourne’s Autumn Statement, the improvement in the UK’s economic recovery is on the right path and the UK is a front-runner in comparison to developed economies including the US, Europe and Japan. We have seen the 2015-2016 growth forecast being revised up to 2.4% from 2.3% on Wednesday. In 2017, Tories see the GDP growing at a firm pace of 2.5%.
Although Osborne’s spending review has lent some support to the market this week, the stagnant growth figures pulled the pound lower against the majority of its G10 peers in London, except the commodity currencies (CAD, AUD and NZD).
The pound is trading very close to 1.50 handle against the US dollar and 70 cents against the euro. We may expect to see a cheaper pound against the US dollar by the end of the year, yet the appreciation against the euro is certainly not over.
Japan needs to finance a potential corporate tax cut
In Japan, the national CPI (ex-fresh food) contracted at the steady pace of 0.1%y/y in October, the jobless rate did not improve as expected (3.4% in Oct) and the household spending has contracted. Japan Finance Minister Aso has been instructed by PM Abe to compile an extra budget to sustain and enhance the corporate activity, yet stated that Japan ‘won’t cut corporate taxes without securing funding resources’. Economy Minister Amari highlighted that the goal remains halving the primary budget deficit.
The yen was better bid against the US dollar in Tokyo, the USD/JPY slid to 122.31 on mixed macroeconomic data. We now know that the government is looking to cut the corporate taxes – yet we still do not have many details on the financing leg. Talks of supplementary budget and better US yields on Fed tightening prospects are lending some support to the USD/JPY within 122.40/122.00 (Fib 38.2% -50% retrace on last month’s rise). If broken, a further slide to 121.50 (weekly pivot) could be considered. Option orders are mixed at about 123.00 for today’s expiry. Resistance is expected to come into play pre-123.75/124, stops are eyed above.