The Struggle Continues

The UK economy remains on shaky ground, as data released today showed a slower pace of expansion in Britain’s manufacturing activity for January. This has shifted focus to next week’s PMI readings, to further gauge the performance of the UK economy in the initial phase of 2013. Meanwhile, all attention is likely to shift to the first US employment report for 2013 due for release later today. Although the US economy is likely to maintain the current pace of hiring, optimism has dissipated somewhat after yesterday’s weak initial jobless claims data. In line with initial estimates, the Eurozone’s manufacturing conditions improved, with the German economy leading the pack.

Pound Sterling – UK Markets

The Pound has continued to lose ground against the single currency and is trading almost flat against the greenback in today’s session. Data just released has indicated that manufacturing PMI in the UK declined for January, further highlighting the fissures in the economy. With major economic indicators showing continued weakness, shifts in current monetary and fiscal policy stances appear a valid possibility. Meanwhile, next week’s industrial production data is likely to show an annual decline for December, reflecting the weakness seen in the British economy during the fourth quarter of 2012. In the aftermath of the UK registering a contraction for the fourth quarter, it remains to be seen whether BoE policymakers relent to the growing pressure of inducing a fresh bout of monetary stimulus in the near future. Additionally, services and construction PMI readings, along with the NIESR GDP estimate for January due next week, will be closely watched to determine whether there has been any recovery in the economy in the early phase of 2013.

US Dollar – US Markets

The US Dollar has weakened against the common currency and Sterling this morning, as traders anxiously await the US labour market report later in the day. Today’s figures are likely to show no major change in hiring momentum among employers, while the unemployment rate is expected to stay unchanged at 7.8%. The Fed’s policymakers will likely remain watchful over the trends emerging from the labour market, broadly due to its influence on the central bank’s current monetary policy stance. After two weeks of stellar performance, jobless claims figures nudged upward, once again highlighting distortions caused by seasonal variations. Meanwhile, personal income in the US registered the biggest increase in eight years, largely driven by a spurt in the payment of special dividends and bonuses in order to beat increases in taxes this year. Apart from today’s employment report, the ISM manufacturing index will also be keenly monitored, given the weakness seen in major regional manufacturing barometers for January. Meanwhile, the University of Michigan’s consumer confidence index will also garner attention, following alarming signals from the Conference Board’s survey earlier this week.

Euro – European Markets

The Euro has moved higher and successfully breached the 1.36 mark against the US Dollar this morning, as manufacturing PMI releases across Europe were largely positive, with manufacturing activity in Germany, Italy and the Eurozone showing an improvement for January. In the midst of burgeoning optimism in financial markets, regulators in Spain decided against extending a ban on short selling in stock markets, bringing some relief for investors. In today’s trading session, unemployment data from the Eurozone will be closely watched to gauge weakness in the peripheral labour market. The Eurozone consumer price inflation also features on the economic calendar, but is likely to have a muted impact on risk sentiment. However, the focus squarely remains on today’s US employment data for further insights into the monetary policy stance that the Fed might adopt during the course of the year.

Other Currencies – Highlights

The Aussie Dollar has declined against its major peers in today’s session, as the domestic manufacturing situation appears grim after data from the Australian Industry Group revealed a sharp fall in the nation’s manufacturing index, registering its eleventh straight month of contraction. Additionally, producer price inflation in Australia eased for the fourth quarter of 2012. To add to the worries, data revealed that the official manufacturing PMI in China unexpectedly fell to 50.4 in January from 50.6 in December. However, the figures were in contrast to the HSBC data which showed that manufacturing activity in China continued to improve for January. Investors await fresh cues next week, which will see a series of Australian macroeconomic releases. Apart from employment, retail sales and building approval figures, the RBA will hold its first monetary policy meeting of the year, wherein the central bank is expected to leave its key interest rate unaltered.