Markets quiet as US takes the day

• UK GDP expands by 0.7% in Q3, GBPUSD runs higher on USD weakness

• Australian Non-Mining investment hits 4 year high in Q3

• China suspends repo operations, leaving additional liquidity in markets overnight

• Japanese yen continues to repair itself from oversold levels

Yesterday’s UK growth numbers gave GBP a slight knock higher on the session, however a fair run of the move higher in GBPUSD was as a result of a weaker USD. UK growth has remained decent but the make-up has given us cause for concern moving forward. Overall growth of 0.7% on the quarter is still pretty strong, especially against Tuesday’s German figure of a meagre 0.1% increase in output. Seeing consumer spending increase at 0.8% - the highest number in four years – is all well and good. Consumer spending makes up around 70% of the UK economy, so without it we would be in dire straits.

It is what’s missing that is the issue; exports were 0.4% lower on the quarter - surely a function of diminishing growth prospects in the UK’s major customer arenas - while government spending ran 1.1% higher – hardly a deficit neutral plan. Consumer spending should stay strong into Q4. The falls in oil and food prices alongside improvements in the jobs market will help improve disposable cash levels, while the great British shopper is always happy to put Christmas on credit and worry about it in Q1. If the UK’s other fundamentals don’t improve and Q1 is a quarter of belt-tightening however, then the outlook for GDP could be very poor.

With the US off on a Thanksgiving break rich in turkey and familial dispute, there is little action expected over the course of today’s session. Yen has gained overnight for the third day in a row as commentators continued to reason that the currency has been oversold in recent weeks. There is little chance in our view that the Bank of Japan will launch anything drastic to further weaken their currency by the end of the year. Of course, the snap election due from Shinzo Abe could create some volatility but if you are looking for additional yen weakness then it is likely to be a case of its crosses gaining against it.

China has once again taken action to loosen its monetary policy overnight, in a further attempt to grease the skids of economic growth and take on the weakened Japanese currency. Today was the first day that the People’s Bank of China did not use repurchase agreements in the open market since July. Repurchase agreements, or Repos as they are more commonly known, take liquidity out of the banking system.

Even with this additional stimulus we are expecting Chinese growth to slow to a more sustainable growth level over the course of 2015; something around 7.0%. Corrections in the property sector, ongoing consolidation and structural pressures in export markets and a tightening on manufacturing spending will all weigh on Chinese – and most emerging markets – economies. On the positive side, we fully expect more deficit-led spending on infrastructure alongside increased consumption to be the main drivers of the Chinese engine.

AUD has rallied back hard on this news as well as an overnight report that showed that the level of non-mining based investment in the country grew by 5.5% in Q3, the highest figure for four years. Australia has been attempting to rebalance its efforts away from the mining sector since 2010 and make sure that its reliance on Chinese exports are diminished in the future. Further rate cuts from the Reserve Bank of Australia look unlikely in 2015 but this news will give policymakers heart that the low rate environment and the weakening of the AUD is working.

Have a great day.