British Pound Sees a Surge in Volatility

Daily Analysis - 11/08/2017

Key Economic Data Paints Mixed Picture

Pound sterling received a boost against the euro on Thursday after U.K. industrial output came in better than expected. However, the country’s trade deficit expanded, capping the morning gains and triggering a strong reversal.

U.K. Exporters Fail to Capitalize on Pound Slump

U.K. industrial production unexpectedly grew in June amid stronger than expected output from North Sea oil fields.

On a monthly basis, industrial production grew by 0.50% in June, the Office for National Statistics said, easily topping the consensus forecast of economists polled by The Wall Street Journal of a 0.20% drop.

Separate data from the Office for National Statistics showed the U.K.’s trade deficit swelling to a nine-month high of 4.56 billion pounds in June, from a revised May figure of 2.52 billion pounds.

Imports surged by 3.30% to a record high of 53.95 billion pounds, while export volumes contracted by 0.70% on the month in June to 49.39 billion pounds.

EURGBP pulled back from strong resistance at 0.90800 in Friday morning trade. The pair hit a low of 0.90075 during the previous session.

U.S. Producer Prices Unexpectedly Drop

Producer prices in the United States declined unexpectedly in July, posting their biggest drop in close to a year and indicating a further moderation in inflation, which may delay a Federal Reserve rate hike.

The Labor Department said producer price index dipped 0.10% last month, weighed by a decrease in costs for services. Economists surveyed by Reuters had forecast the PPI to rise 0.10%. The core PPI, which excludes energy, food and trade services, remained unchanged on a monthly basis. The core gauge advanced 2.00% in June.

S&P 500 September futures witnessed a broad-based sell-off on Thursday amid an escalation in tensions with North Korea. The index future broke below the key support at 2450 to last trade around the 2435-mark.

China Fiscal Spending Rate Slows

China's fiscal spending grew at a slower pace in July after recording strong growth in the first half of the year, according to official data released Friday. The Chinese government spent 1.35 trillion yuan ($202.70 billion) in its July fiscal budget, up 5.40% from a year ago, but below the 19.10% increase in June.

The Ministry of Finance said the slower growth last month was largely on account of government front-loading its spending during the first half of the year. Fiscal expenditure soared 14.50% in the first seven months of 2017 compared with the same period a year ago.

Fiscal revenue also increased 11.10% on year in July to 1.65 trillion yuan, buoyed by greater earnings from land sales.

AUDNZD, which is prone to fluctuations in Chinese economic data, is down Friday morning to currently hover around 1.07900.

Corn Prices Tumble

Corn futures fell sharply on Thursday after the U.S. Department of Agriculture forecast bumper harvest of the crop in its monthly production report. Despite a slow start to planting and fears that hot and dry weather conditions harmed the crop during its crucial periods of development, the government agency projected corn production at 14.153 billion bushels for 2017 on an average yield of 169.500 bushels per acre.

If realized, both of these figures would be the third biggest on record. In July, USDA had forecast a corn harvest of 14.255 billion bushels with a yield of 170.700 bpa.

Corn stocks hit record highs last season, and the prospect of another strong harvest sent corn September futures tumbling over 2.50% on Thursday to touch a six week low.