UK PMI Manufacuring Highest since February 2011

Following a week of relatively subdued economic activity, the week ahead promises to offer cues on the strength of the global economic recovery as well as the BoE and ECB’s take on their respective policy stance. At home, the week has begun on a positive note, with data just out pointing towards a pickup in manufacturing activity in November. In the Euro zone, last week’s upbeat inflation report has temporarily stalled talks of negative deposit rates. However, investors will closely scrutinise this week’s ECB meeting for a clearer idea of the central bank’s future outlook. Across the Atlantic, significant macro-economic data during the week will prove crucial ahead of Chairman Ben Bernanke’s last monetary policy meeting as Fed chief this month.

Pound Sterling – UK Markets

Despite weaker than expected mortgage approvals numbers, Sterling traded broadly higher against the majors on Friday. The slightly weak mortgage print for October was still the highest in nearly six years, even as separate reports by Nationwide and Hometrack indicated that house prices in the UK continue to climb, aided by supportive government schemes and low mortgage rates. However, with the BoE moving to end mortgage loan incentives last week to curb a potential housing bubble, property prices in the UK are expected to cool-off in the near term. Meanwhile, in the run up to the UK manufacturing PMI report, Sterling nudged above the 1.64 mark against the US Dollar this morning and the just out upbeat manufacturing print has further strengthened the Pound against the majors. With little on the domestic economic calendar, the Pound-US Dollar pair will take direction from a slew of US economic data, including the manufacturing PMI numbers and a speech by the Fed Chairman, Ben Bernanke in the session ahead. Later this week, risk sentiment towards the Pound will be influenced by a host of domestic and international news flows.

US Dollar – US Markets

The US Dollar lost direction against the common currency on Friday amid a lack of domestic economic data and a mixed bag of Euro zone macro releases. However, with the Euro zone consumer price inflation showing a modest uptick for November, the US Dollar remained under pressure against the Euro amid increased demand for the single currency. Meanwhile, the US Dollar is trading stronger against the Euro in today’s trading session despite the release of positive Euro zone manufacturing PMIs earlier today. Furthermore, investors are waiting on the sidelines following weaker-than-expected Black Friday sales in the US. The domestic manufacturing activity reports later today will be closely followed by investors for further direction to risk appetite. Additionally, a speech by Ben Bernanke will gain market attention today for insights into the future Fed policy stance. With the domestic non-farm payrolls numbers, the Reuter/Michigan consumer sentiment report and the revised third quarter GDP print, among others, to be released this week, investors have their hands full in terms of macro releases in the week ahead.

Euro – European Markets

The single currency failed to record any major peaks against the US Dollar on Friday in spite of the buoyant Euro zone consumer price inflation and labour market data. The marginal rise in the Euro zone consumer prices for November has eased concerns that the region is sliding into deflation and lessened the pressure on the ECB to loosen its monetary policy in its policy meeting later this week. Additionally, the unemployment rate in the common currency bloc ticked down for November from the record high in the previous month, providing further cheer to the battered Euro zone consumer. However, the unexpectedly dismal German retail sales numbers dampened investor mood and limited the common currency’s gains against the greenback. The Euro is trading lower against the majors this morning despite the release of upbeat manufacturing PMI reports from across the Euro zone, except Spain. Later this week, a string of crucial economic data, apart from the ECB monetary policy meeting will keep Euro investors on their toes.

Other Currencies – Highlights

The Canadian Dollar weakened against its US counterpart on Friday despite an upbeat domestic growth report. The annual pace of Canadian economic growth was the fastest in two years in the third quarter, riding on the back of a pickup in the mining, manufacturing and retail sectors, although a modest growth in household spending and government consumption weighed on the overall GDP print. However, the upbeat growth numbers are unlikely to hasten the BoC to raise its benchmark interest rates in the near term with this week’s monetary policy meeting expected to be a low key affair. With little on the domestic macro front, important economic releases from across the southern border will drive movement in the Canadian Dollar against the greenback over the next couple of days. Later this week, apart from the BoC meeting, investors will keep a tab on the domestic manufacturing PMI and labour market data for further direction to risk appetite.