Morning Report: 02 December 2014

2nd December 2014 By: Ranko Berich

GBP Sterling strengthened yesterday, as firm Purchasing Managers Index data was released for the Manufacturing industry. PMI figures are among the best measures of overall health in an economy because they are an up-to-date snapshot of activity levels as reported by actual business leaders. The data showed that job creation had actually accelerated in November, a positive sign that suggests UK manufacturers expect that they will continue to experience adequate demand in the future. New export orders remained subdued, but good domestic demand more than made up the difference, and the index ultimately gave an optimistic view of the UK manufacturing sector. The Bank of England’s M4 Money Supply data showed that headline Money Supply had contracted by 0.1% month on month in October, and mortgage approvals had also decreased. There is no cause for concern in the data, as money supply remains up year on year, and the slight cooling in mortgage approvals is likely to be seen as reassuring by those concerned about a housing bubble in the UK. Today at 09:30 GMT, Construction PMI data will be released.

EUR The euro has been trading within a reasonably predictable range against USD of late, and yesterday was no exception. The European Purchasing Managers Index for the Manufacturing sector showed that activity was grinding to a halt across Europe as a whole. The three largest eurozone economies of France, Germany and Italy reported contraction in November, as prices for sold goods fell. New business orders fell. The results were unambiguous: the eurozone’s manufacturing sector is slowing, and is already contracting in three major economies. The results will add to the already substantial pressure the European Central Bank is facing to raise inflation in the eurozone, and this Thursday’s ECB meeting and press conference will be a major test of the organisation’s credibility. Today at 10:00 GMT, the Producer Price Index for the eurozone as a whole will be released.

USD Between fluctuating oil prices, economic data releases and central bank speakers, the United States dollar had plenty of cause for volatility yesterday. Manufacturing Purchasing Managers Indices from research agencies Markit and ISM both showed activity in the sector growing at a highly satisfactory pace, a good sign for the economy as a whole given the manufacturing’s role as a source of jobs and income. Crude oil rallied overnight, after at one point the Brent benchmark fell below USD $68, its lowest level since 2009. Finally, William Dudley of the New York Federal Reserve gave a speech in which he noted that the Fed is still undershooting its target for both employment and inflation, suggesting that there would be cause for aversion to raising interest rates before both objectives are met. However, Dudley did suggest that June 2015 seems a reasonable time for rates to rise based on the condition of the economy. Interestingly, Dudley said that the timing and pace of the Fed’s actions would depend on how tight or loose credit markets were at the time- if markets were skittish and reluctant to lend to each other, this would be cause for later, more modest hikes.

CAD The loonie’s rally continued yesterday, despite a lack of fundamental data. Some of CAD’s resilience can be explained by a rally in crude oil prices, although how durable this development will prove is far from certain. No data is out today, and markets will have to wait until tomorrow’s Bank of Canada interest rate announcement at 15:00 GMT for the next CAD event.

UK news

  • FT. Chancellor to admit falling far short in effort to cut UK deficit: The UK chancellor will be forced to announce on Wednesday that he will fall far short of his 2010 target of eliminating the country’s underlying deficit in 2014-15.
  • Reuters. UK manufacturing grows slightly faster in November despite lacklustre exports – PMI: British manufacturing activity unexpectedly picked up a little speed in November as domestic demand offset falling exports due to sluggish orders from the euro zone and emerging markets, a survey showed on Monday.
  • Telegraph. Cheap borrowing fuels consumer credit boom: Demand for credit increases at fastest pace in eight years in October, though UK mortgage approvals continue to fall.