UK Construction PMI Expansds for Seventh Consecutive Month

With the UK manufacturing activity climbing to almost a three-year high, a broad based economic recovery seems to be taking effect. Tomorrow’s domestic services PMI report will be closely scrutinised for further hints on the UK growth story. Manufacturing PMI prints in the US and the Euro zone also provided a pleasant surprise to investors. While the largely upbeat European PMIs will ease pressure on the ECB to loosen its policy stance, the positive US manufacturing numbers have raised expectations of a sooner QE3 tapering. The upcoming economic indicators are likely to determine the stance the Fed is expected to adopt, especially the labour market report later this week.

Pound Sterling – UK Markets

Sterling surged to more than a two-year high yesterday before nudging lower later in the day against the US Dollar, as an upbeat November British manufacturing PMI report added to the positive mood in markets. Manufacturing activity in Britain expanded at the fastest pace since February 2011 as new orders rose to a near twenty-year high, primarily due to an increase in domestic demand ahead of the festival season. Additionally a pickup in employment and exports also boosted the manufacturing numbers. Meanwhile, the BRC indicated that overall same store sales growth in the UK slowed in the previous month but picked up at the end of November driven by a sharp rise in online sales, as colder weather boosted sales of winter clothes and footwear. The Pound is trading stronger against the majors this morning. Data just out has shown a further rise in the UK construction PMI for November  boosted by the sharpest expansion in residential house building since 2003. With little on the global economic calendar to trigger risk appetite, investors in the Pound are looking ahead to tomorrow’s crucial services PMI report for further direction to risk appetite.

US Dollar – US Markets

Buoyed by unexpectedly strong domestic manufacturing numbers, the US Dollar strengthened against its counterparts yesterday. The ISM manufacturing gauge in the US rose to its highest level since April 2011 for November, on the back of rising new orders, thereby fuelling expectations of the Fed scaling back QE3 earlier than expected. The November labour market report on Friday will offer clearer hints about the likely Fed policy stance going forward. Although, the economic activity in the US appears to be gathering pace, market participants are likely to stay watchful, as the rising benchmark US bond yields could hurt the nation’s recovery going forward, given its profound influence on housing and financial sectors. Meanwhile, the US Dollar is trading on a weaker footing against the majors in today’s trading session. With no major domestic economic data on tap, global economic news flows is likely to determine trading sentiment in the greenback against its peers today. Looking ahead, tomorrow’s domestic ADP employment report is expected to stir volatility in markets ahead of the non-farm payrolls print later this week.

Euro – European Markets

Despite the largely upbeat and unexpectedly strong November manufacturing PMI numbers across the Euro zone, the common currency moved lower against the majors yesterday. Although Spain’s manufacturing sector showed an unexpected contraction, the rest of the major Euro zone economies, led by Italy, posted better than expected numbers to temporarily silence talks of negative deposit rates. Italy’s manufacturing sector expanded at the fastest pace since June 2011 to provide some respite to the battered economy, particularly in the aftermath of the recent political events. The Euro came under pressure against the US Dollar as speculation of the US Fed scaling back its QE3 gathered pace after upbeat US economic data yesterday. The single currency is trading higher against the greenback in today’s trading session after an unexpected fall in Spain’s unemployment change numbers. The Euro zone producer price inflation numbers will gain attention later today. With a light global economic calendar today, market participants are already looking ahead to a slew of Euro zone economic data tomorrow, including retail sales, services PMI and the revised third quarter GDP numbers for further hints on the overall strength of the common currency bloc’s economic recovery.

Other Currencies – Highlights

The Aussie Dollar has continued its downward momentum against the US Dollar this morning as the nation’s trade deficit widened more than expected for the third quarter. Downbeat Chinese services PMI print further dented any prospects of a recovery in the Aussie Dollar against the greenback, even as better than forecast domestic retail sales report went largely unnoticed. Meanwhile, as expected, the RBA kept its key interest rate unchanged at 2.50% in its policy meeting today. Glenn Stevens, the RBA Governor’s comments that the Australian Dollar continues to remain “uncomfortably high”. The slide in the Australian Dollar started yesterday following the release of weak domestic manufacturing PMI numbers. Moving forward, market participants will keep a tab on the Australian third quarter GDP and the services PMI report tomorrow for further direction. Additionally, a slew of important news flows emanating from both sides of the Atlantic will prove crucial for the Australian Dollar against the majors in the near term.