Yesterday’s slide in equity markets could well have all the hallmarks of something a little bigger, given that it also coincided with a slide in bond markets, as yields edged higher.

One of the catalysts appears to have been a slide in oil prices which appears to have been brought about by concerns as to whether OPEC and non OPEC members, for all their rhetoric at Algiers, have the will to make their agreement stick. When this is combined with some disappointment over Apple’s latest earnings report, which then prompted a broader sell off in the technology sector, and you have the recipe for some broader profit taking at a time when both European and US equity markets are closer to, or at their peaks. Markets in Asia have followed on from this weak lead this morning and this looks set to lead to a weaker open for European markets this morning.

The sell-off in European bond markets came in the wake of comments by ECB President Mario Draghi when he suggested that the deflationary risks caused by falling prices appeared to have come to an end. UK yields also nudged higher in the wake of Governor Carney’s comments yesterday as traders looked to price in higher inflation, ahead of next week’s quarterly inflation report from the Bank of England.

Since the shock of the summer Brexit referendum result in June which saw the “Leave” side unexpectedly win it would appear that some protagonists on both sides still appear to be rehashing the same old arguments that became so tiresome during the campaign.

From the remainers who prophesied doom and gloom and immediate recession, to the leavers who promised “sunlit uplands” the UK economy appears to have coped quite well despite the initial shock in the immediate aftermath.

While the falling pound has no doubt cushioned some of the blow, today’s first iteration of UK Q3 GDP will no doubt be used by both sides to reinforce their various hard and soft Brexit narratives, as the political stakes continue to get ratcheted up by either side.

What is certain is that the doom and gloom predicted in the lead up to the vote has not happened, though the data will undoubtedly show that the UK economy has slowed in Q3 from the 0.7% in Q2.

It is also likely to show that the services sector will have contributed the lion’s share of the economic momentum with expectations of a quarterly figure of 0.3% to 0.4% expected, with an annualised number of 2.1%.

The index of services component is expected to show a gain 0.8%, up from 0.6%, helping offset the weak beginning of the quarter in July which saw initially weak PMI numbers, before strong rebounds in August.

The risk is that the decline in the pound could see price rises in the months ahead which could well take the heat out of consumer spending in the lead up to Christmas.  We could get an early taste of that with the latest CBI retail sales numbers for October, particularly after a poor September number.

What does seem likely is that a decent GDP number today could well put the final nail in the prospect of further policy action by the Bank of England at next week’s rate meeting, and thus help push the pound further away from this week’s recent lows at 1.2082, against the US dollar.

It’s also a big day for bank earnings with the latest quarterly announcements from Barclays and Deutsche Bank, where both banks will be hoping to match the achievements of their US peers in beating expectations. While that may happen in the case of Barclays, Deutsche Bank remains a different story as investors fret about how the bank management will be able to navigate their way through a minefield of litigation in the weeks and months ahead.

EURUSD – while below resistance between 1.0950/70 the pressure on the downside remains, with the prospect of a move towards trend line support at 1.0710 from the all-time lows at 0.8230 back in the year 2000. We need to push back above 1.0970 to stabilise and argue for a retest of the 1.1100 area.

GBPUSD – appears to have found a base at 1.2080 and could well see a move back towards the 1.2330 area. We have interim resistance at 1.2270 which may well act as an obstacle to this. A break below the 1.2000 area has the potential to open up the previous flash crash lows at 1.1950, and possibly lower.

EURGBP – squeezed back to the 0.8980 level before slipping back keeping the risk of a move through the 0.8870 level towards the 0.8780 area. A sustained break back above the 0.8960 area retargets the highs last week at 0.9080.

USDJPY – appears to be gearing up for a move towards 105.20, given its failure to push back below the 103.70 area this week. The risk remains of a move lower below 103.00 remains a possibility towards 102.20.

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