Nick Nasad
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UK CBI Leading Indicators a Blip on the Radar or Do They Point to Soft Start for 4Q

A couple of reports from the UK have raised my eyebrows as they could mean a soft start to the 4Q.

The Confederation of British Industry (CBI) conducts surveys of its members and releases monthly surveys of manufacturers and retailers. These surveys have been generally positive over the past few months, however, the figures for October were disappointing.

UK Manufacturing Orders Balance Turns Back Negative

The CBI Industrial Orders Index is a measure of new orders being placed with manufacturers, and is a net figure. Its reading of -4 means that 4% more manufacturers reported weaker orders compared to stronger orders. In September this figure was at +9, and in August came in at 0 (you can see the graph of the index above). Is this a blip on the radar? Or a sign that manufacturing in the UK may cool?

UK Retailers See Weaker Sales On Balance

In a second report, the CBI Realized Sales Index - measures the net amount of retailers saying sales were stronger than expected compared to those saying they were weaker. For October, the figure was a +2, which was much lower than expectations of a +33 reading. The reading breaks a very positive last 3 months (34 in Sept, 27 in Aug, 17 in July).

The CBI put a positive spin on both surveys, saying that looking at the overall picture both manufacturers and retailers have had good 3rd quarters and growth seems to be supported going forward. That's all well and dandy, but the market has priced in that better data and now the surprise risk is to the downside - which could place the BOE into a more dovish stance. The BOE has been trying to be dovish, but market participants are pricing in a more hawkish one. Maybe the BOE's rhetoric and the price of government bonds may become more aligned. If they do, then we could see a generally weaker GBP going forward.