Positive UK Manufacturing Data

Data just released indicated that the UK manufacturing activity expanded at a faster than expected pace for June, thereby pointing to a steady growth in the sector during the second quarter. With this, markets will now assess the pace of development in construction and the most important services sector to ascertain whether the recovery is broad-based or not. Across Europe, today’s manufacturing PMI reports from European nations showed that recovery in the region remains uneven and fragile. With an action-packed week ahead across the Atlantic, today’s ISM manufacturing report will attract market attention and is likely to strengthen the current notion that recovery in the nation remains steady.

Pound Sterling – UK Markets

The Pound has moved above the 1.71 mark against the US Dollar this morning after data indicated that the UK manufacturing activity improved more than expected for June, continuing to exhibit strong performance during the second quarter. Most of the market attention has now shifted to the crucial services PMI reading scheduled later this week for further cues over the pace of growth during the second quarter. Meanwhile, the US ISM manufacturing PMI report due later in the session has the potential to alter market sentiment towards the Pound-US Dollar pair going forward. Over the weekend, the BoE Governor, Mark Carney has indicated that interest rates are likely to increase to around 2.5% over the next three years with the first rise expected this year, thereby leading Sterling to advance against the greenback yesterday. However, data showed that the number of mortgages approvals in the UK fell to the lowest level in 11 months, suggesting that tight lending rules might have provided some breather to the overheating domestic property market.

US Dollar – US Markets

Last week was comparatively quiet, with US growth fears the main theme as the final GDP reading for the first quarter was revised sharply lower. However, this week holds a lot of promise in terms of macroeconomic releases, especially the important non-farm payrolls report. Starting today, the ISM manufacturing PMI report will take centre stage, although it is unlikely to show a significant improvement in the wake of mostly downbeat regional manufacturing reports released last month. However, there appears no doubt that US economic recovery has rebounded during the second quarter, as most of the economic releases suggest a pick-up in activity along with an improvement in the housing market. Separately, data released earlier today indicated that Chinese manufacturing activity improved for June, helped by stimulus steps taken by China to boost recovery. The US Dollar dropped against the majors yesterday following mixed economic releases in the US. Data showed that pending home sales in the US surpassed market estimates for May while the Chicago region manufacturing activity slowed more than expected for June.

Euro – European Markets

Data released earlier today indicated that the number of unemployed people in Germany unexpectedly rose while the unemployment rate remained steady for June. Meanwhile, the manufacturing activity reports from most of the European regions showed an easing trend for June, thereby indicating that recovery in the region continues to remain uneven and fragile. However, the Euro showed little reaction to these weak economic reports and continued to trade in a tight range against most of its major counterparts this morning. Markets will keep a close eye on the Euro zone unemployment rate print which is likely to remain steady for May. The Euro edged higher against the greenback and moved close to the 1.37 mark yesterday. Data showed that consumer price inflation in Euro zone continued to remain at low levels which were last seen during the recession in 2009. However, markets shrugged off these weak inflation numbers, as they continued to evaluate the implication of the unprecedented policy move announced in June.

Other Currencies – Highlights

The Japanese Yen dropped against the US Dollar in today’s trading session as the Tankan survey offered mixed signals. Data indicated that sentiment among Japan’s large manufacturers deteriorated during the second quarter, mainly on the back of the recent sales tax hike. However, the sentiment is poised to improve during this quarter, thereby underscoring the Bank of Japan’s view that the effect of sales tax hike will be temporary. Separately, data showed that Chinese manufacturing activity improved for June, mainly on the back of stimulus efforts adopted by Beijing in order to boost recovery in the nation. With no major domestic releases scheduled this week, investors will keep a close watch on today’s ISM manufacturing activity and this week labour market reports in the US for further direction to risk appetite.