Global Manufacturing Bearing the Brunt

The PMI readings have offered a somewhat grim picture today, as manufacturing sectors in China and the Eurozone continue to suffer under prolonged economic weakness, which weighs heavy on high yield assets. However, major central banks have recently announced unprecedented sets of measures to combat the economic weakness, so we all live in hope. Yesterday’s minutes sprung a surprise, revealing that the possibility of increasing the central bank’s asset purchase programme played on the minds of a few BoE policymakers. However, economic releases continue to portray a different picture, with today’s annual retail sales data further bolstering the belief that economic recovery in the UK is gathering momentum.

Pound Sterling – UK Markets

Despite BoE policymakers unanimously voting to leave the benchmark interest rate and asset purchases unchanged at current levels, the Pound weakened against the US Dollar and the Euro in yesterday’s trading session, as the meeting revealed that more QE remains in the realm of possibility. The minutes also cautioned that inflation will ease more slowly than the central bank had earlier predicted. However, the Pound has recovered steadily from yesterday’s lows against the Euro, following weak PMI data from the Eurozone. Additionally, data just in has indicated that annual retail sales continued to climb at a steady pace for August. Meanwhile, Sterling has slid against the US Dollar as lower risk appetite amongst investors, following dismal manufacturing activity data from China and the Eurozone, prompted traders to switch to safe haven currencies. In today’s trading session, the CBI’s trends survey scheduled later today is expected to shed some light on the health of the retail sector for the current month.

US Dollar – US Markets

The US Dollar has continued to climb against the Euro and the Pound in today’s session, as traders stayed cautious after the latest PMI data from China and the Eurozone revealed that the manufacturing sector continued to contract for September. Moreover, data revealed that Japan's exports fell for a third straight month, highlighting the weakness in global demand and prompting market participants to seek shelter in safe haven assets. However, the housing sector in the US remained the bright spot of the economy, as building permits and housing starts rose for August, reflecting the recent improvement in homebuilder confidence. Moreover, existing home sales climbed at the fastest pace in more than two years. The Philadelphia Fed’s manufacturing data and jobless claims figures will be keenly eyed to gauge the trend for the US Dollar in today’s session. Additionally, the outcome of the Spanish bond auction later today should provide insights into investor appetite for riskier assets.

Euro – European Markets

The Euro has weakened against its major peers and slipped below the 1.30 mark against the US Dollar after manufacturing PMI in France registered a sharp decline and manufacturing activity in China, Germany and the Eurozone continued to contract for September. The anaemic state of the manufacturing sector and reluctance of the Spanish government for demanding fresh aid has once again rekindled sovereign debt worries. Today’s Spanish long term bond auctions hold relevance, given the continued focus on the nation’s fiscal situation. Markets expect Spain to witness successful bond auctions, broadly due to the recent robust demand at its short term auctions. Meanwhile, declining borrowing costs might prompt Spanish policymakers to pursue a wait and watch approach to applying for a rescue package from its European counterparts. With PMI readings across Europe and China providing little to cheer, markets are expected to shift their attention towards the region’s consumer confidence reading and other macro data from the US for further direction.

Other Currencies – Highlights

The Kiwi Dollar is trading sharply lower against safe haven currencies this morning, as traders were spooked by concerns over a global economic slowdown following weak PMI readings from the Eurozone and China. Moreover, weak trade data from Japan also highlighted the dire state of the global economy. Meanwhile, data released yesterday revealed that New Zealand’s economy grew at a faster than expected pace for the second quarter, driven by record milk production and an improvement in building activity. The concerns surrounding the Chinese economy and the Eurozone failed to have any meaningful impact on the growth figures. Apart from New Zealand’s credit card spending data due tomorrow, the Kiwi Dollar is expected to pay attention to economic releases from the US in today’s session and developments in Spain for further direction.