UK DATA: Q3 GDP Seen Slowing Slightly, JLR Shutdown Impact The Main Question
The first estimate of Q3 GDP is seen at 0.2% Q/Q (vs 0.3% Q2) by the majority of sell-side analysts (with some downside risk), in line with the BOE's forecast and Bloomberg consensus. The key driver to watch will be industrial production, where the extent of the pullback caused by the Jaguar Land Rover (JLR) cyberattack-induced shutdown (throughout all of September) will impact both the monthly and quarterly GDP readings.
- JLR did not produce a single car in September, causing UK car production to fall by 27% Y/Y. RBC estimate that car production accounts for c.0.5% of UK GDP. Still, they note that car production often rises in September after planned shutdowns for holidays and maintenance, and that knock-on effects across the broader JLR supply chain could drag September's monthly GDP into contraction (but still up 0.2% Q/Q).
- In Q2, GDP grew by 0.3% Q/Q (after 0.7% Q1). Looking at the underlying sectors: services rose 0.4% Q/Q, construction grew 1.0% Q/Q and production fell 0.8% Q/Q.
- For September M/M GDP, almost all sell-side analysts look for a print between -0.1% and +0.1% print, with risks skewed to the downside. This follows 0.1% and 0.0% in August and July respectively.
- Lloyds (who instead look for -0.4% M/M, 0.1% Q/Q) see a combination of sharp falls in industrial output (-2.8% M/M) and construction output (-0.7% M/M) offsetting a small gain in services. While the industrial output figure is mostly due to the JLR shutdown, they also note "the sharp decline in oil & gas expansion activity".
- It's also worth noting that manufacturing output rebounded in August (0.7% M/M after -1.1% July), potentially leaving room for the monthly figure (feeding into industrial production) to pull back sharply again in combination with the JLR-driven decline.
- In the services sector, a flat or modest positive M/M reading is seen, rounding off its almost completely stagnant quarter (after 0.4% Q/Q growth in Q2). This would imply Q/Q growth of around 0.3%.
- September was wetter than usual - particularly in the first half of the month - and this may have impacted the data - particularly construction.
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STIR: Labour Market & Trade War Trigger Dovish BoE Repricing, 8bp Cuts Thru Dec
The combination of the ongoing Sino-U.S. trade tensions and a soft UK labour market report (albeit not completely negative in the details, as outlined in recent bullets) results in dovish repricing on the GBP STIR strip.
- SONIA futures 0.5-6.0 firmer, strip bull flattens.
- BoE-dated OIS 1-5bp more dovish across liquid contracts, pricing ~2bp of easing for next month and ~8bp through year-end. Markets hesitant to reprice the November meeting given the recent hawkish market moves, lack of clarity from the BoE re: the timing of the next cut and still sticky inflation.
- The next 25bp cut is now fully discounted come the end of the March meeting, pulled forward from April.
- We will hear from BoE Governor Bailey tonight. He will participate in a fireside chat. We will be watching closely for any hints re: his Q4 voting intentions.
- Bailey remains the key swing voter for the Q4 decisions, in our view.
- He previously pointed to a downside surprise in wage growth being one of his motivations for voting for an August rate cut. However, we aren't sure today’s data will convince him either way.
- Next week we will receive the final CPI report ahead of the November MPC meeting and that is likely to be of huge importance to Bailey.
BoE Meeting | SONIA BoE-Dated OIS (%) | Difference vs. Current Effective SONIA (bp) |
Nov-25 | 3.948 | -2.0 |
Dec-25 | 3.888 | -8.0 |
Feb-26 | 3.762 | -20.6 |
Mar-26 | 3.718 | -25.0 |
Apr-26 | 3.630 | -33.8 |
Jun-26 | 3.600 | -36.8 |
Jul-26 | 3.545 | -42.3 |
Sep-26 | 3.533 | -43.5 |
FOREX: GBP Softer on Jobs Data, AUD Eyeing Support
- GBP is the early mover Tuesday on the sizeable downward surprise to the single month private regular AWE. This puts GBP/USD over 60 pips lower following the UK employment release, with next support eyed at 1.3262, the Oct 10 low.
- Despite the move in GBP, it's AUD that's still the worst performer against the USD in G10, down 0.8% on the day. The continued tit-for-tat between the US and China on trade is providing some risk-off tone and is weighing here. Further push lower in AUDUSD opens 0.6463, the Aug 27 low next.
EQUITY TECHS: E-MINI S&P: (Z5) Pullback Appears Corrective
- RES 4: 6850.87 1.618 proj of the Aug 1 - 15 - 20 price swing
- RES 3: 6831.38 2.500 proj of the Aug 20 - 28 - Sep 2 price swing
- RES 2: 6819.25 1.500 proj of the Aug 1 - 15 - 20 price swing
- RES 1: 6718.50/6812.25 Intraday high / High Sep 9
- PRICE: 6651.00 @ 07:28 BST Oct 14
- SUP 1: 6602.32 50-day EMA
- SUP 2: 6540.25 Low Sep 10 and a key short-term support
- SUP 3: 6506.50 Low Sep 5
- SUP 4: 6427.00 Low Sep 2
A sharp sell-off in S&P E-Minis on Friday appears corrective - for now. The contract has found support below the 50-day EMA, currently at 6602.32, and last Friday’s low of 6940.25 has been defined as a key short-term support. Note that moving average studies are in a bull-mode position, highlighting a dominant uptrend. The bull trigger is 6812.25, the Sep 9 high. A breach of this hurdle would confirm a resumption of the uptrend.
