Gloom Fades on PMI Data

The UK Prime Minister, David Cameron, is in Brussels today for the EU budget negotiations and is expected to insist on a freeze in spending and maintaining Britain's rebate. Yesterday’s BoE policy meeting minutes revealed that doubts surrounding the effectiveness of QE, together with inflationary pressures, continue to deter the BoE from inducing more easing measures in the near term. With the Greek Prime Minister upping the ante by warning that the stability of the Eurozone hangs in the balance, a deal is largely seen to be coming after the German Chancellor indicated that an agreement would be reached as early as Monday. Additionally, upbeat manufacturing PMI data in China and across Europe has soothed fears over global economic growth.

Pound Sterling – UK Markets

Sterling has climbed marginally against the US Dollar in today’s trading session, as risk appetite among traders received a boost following data that revealed Chinese manufacturing activity expanded for November. However, it is trading in a tight range against the Euro. Markets will keenly eye David Cameron’s visit to Brussels later today to negotiate the EU budget, wherein he is expected to press hard for reductions to EU spending plans. The Pound held firm against the greenback in yesterday’s session, after minutes of the latest monetary policy meeting revealed that central bank officials unanimously voted against lowering the benchmark interest rate. With most policymakers voting against increasing the asset purchase target, there were questions raised over the effectiveness of QE as a tool for reviving economic growth. Meanwhile, government borrowing grew for October on account of weak corporation tax receipts. In today’s session, traders are expected to keep a watch on CBI’s trends survey for insights into the health of the manufacturing sector.

US Dollar – US Markets

Easing worries surrounding global growth prospects have led the US Dollar to continue its slide against the majors in today’s session. Data released earlier today revealed that Chinese manufacturing activity ended thirteen months of contraction while German, French and Eurozone manufacturing data showed signs of improvement. Adding to the optimism the German Chancellor, Angela Merkel, sounded positive over reaching a deal to release the next aid tranche for Greece during the meeting of European policymakers. Among key economic data from the US, jobless claims for the previous week slipped in line with estimates, highlighting that the sharp spurt in the preceding week was a one-off impact on account of Hurricane Sandy. However, the Reuters/Michigan consumer sentiment index showed some signs of weakness, as it retraced from its recent highs despite the holiday season kicking off. With no major economic releases today due to the Thanksgiving Day holiday in the US, traders are expected to set their focus on developments in the Eurozone for further direction.

Euro – European Markets

Investors seem to have become less apprehensive regarding global economic growth, as upbeat economic data from all quarters contributed to the strength in the Euro against the US Dollar today. The latest set of PMI data revealed that Chinese manufacturing PMI climbed to the highest level in thirteen months, while manufacturing activity in Germany, France and the Eurozone showed signs of improvement for November. The Greek Prime Minister, Antonis Samaras, urged creditors to bridge their differences and agree on the release of the next aid tranche to Greece. However, concerns have abated as German Chancellor, Angela Merkel, indicated that European finance ministers are likely to reach an agreement on Monday. Apart from Sunday’s regional elections in Spain and Eurozone policymakers meeting on Monday, traders are also expected to keep an eye on consumer confidence data scheduled later today, to gauge consumer morale ahead of Christmas. Additionally, the European Union leaders’ meeting commencing today, to negotiate the region’s budget, is likely to be closely watched.

Other Currencies – Highlights

The Japanese Yen has continued its recent slide against the majors, as improving prospects for the global economy dampened demand for safe haven currencies. Better than expected manufacturing data from the Eurozone and a recovery in the Chinese manufacturing sector contributed to the “risk on” sentiment among traders. Additionally, growing hopes of Eurozone policymakers reaching a deal for releasing Greece’s next aid tranche prompted traders to shun safe haven currencies. Additionally, traders remained cautious over the political situation in Japan, as fears of the opposition party gaining control of the leadership spurred speculation of further monetary stimulus to the Japanese economy. Meanwhile the Bank of Japan, in its monthly economic report, has indicated that domestic industrial production is expected to remain flat for the first quarter of next year. Moreover, weakness in the nation’s retail sector was evident, as supermarket sales continued to slide for October.