What’s been happening?

Pound Sterling – UK Markets 

The British pound suffered heavy losses vs the dollar on Wednesday and erased the modest gains that it posted in the last two weeks of 2018. Against the euro, the currency was virtually unchanged on a daily basis. The data published by the IHS Markit on Wednesday revealed that the business activity in the UK’s manufacturing sector expanded at a faster rate than expected in December with the headline PMI improving to 54.2 from 53.6 in November and beating the experts’ analysis of 52.5. Commenting on the report, “December saw the UK PMI rose to a six-month high, following short-term boosts to inventory holdings and inflows of new business as companies stepped up their preparations for a potentially disruptive Brexit,” said the IHS Markit’s Rob Dobson and added: “Any positive impact on the PMI is likely to be short-lived, however, as any gains in the near-term are reversed later in 2019 when safety stocks are eroded or become obsolete.”

Meanwhile, The Financial Times over the weekend wrote about the results of a recent survey conducted by the IPSOS Mori. According to the article, 74% of the top 500 British companies were pessimistic about the year ahead and only 8% of the participants were expecting an improvement in business conditions in 2019. 

US Dollar – US Markets

The dollar took back all of its losses it recorded against its rivals in the last week of 2018 and started the new year on a strong note with the US Dollar Index, which gauges the greenback’s value against a basket of six major currencies, rising above the 97 mark for the first time since the Christmas holiday. The only data from the United States on Wednesday showed that the manufacturing sector remained relatively healthy in December. Although the IHS Markit’s Manufacturing PMI edged down to 53.8 from 55.3 in November, the index remained well above the expansion threshold. Commenting on the data, “Growth was led by strengthening demand for consumer goods, and robust growth was also reported for investment goods such as plant and machinery. But producers of intermediate goods – who supply inputs to other manufacturers – reported the weakest rise in new orders for over two years, hinting at increased destocking by their customers,” said Chris Williamson, Chief Business Economist at the IHS Markit.

Meanwhile, regarding the trade conflict with China, President Trump said that negotiations with China were coming along very well and added that stock markets would go up once trade deals were settled. “We need a little help from the Fed on the markets,” Trump further elaborated and reiterated that the government could stay shut down for a long time.       

Euro – European Markets

Similar to the pound sterling, the euro weakened sharply against the dollar on Wednesday as investors moved away from risk-sensitive currencies amid concerns over a global economic slowdown in 2019.

The final reading of the Eurozone Manufacturing PMI came in at 51.4 in December to match the market expectation. Although this number showed an expansion in the sector, the growth momentum continued to deteriorate. Assessing the report, “The weakness of the recent survey data, in fact, raises the possibility that the goods-producing sector could even act as a drag on the overall economy in the fourth quarter, representing a marked contrast to the growth surge seen this time last year. The last three months of 2018 saw manufacturers report the worst quarterly performance in terms of production since the second quarter of 2013,” noted Chris Williamson, Chief Business Economist at the IHS Markit.

What’s coming up? 

UK: The IHS Markit will release December Construction PMI report on Thursday. 

US: Challenger job cuts, ADP employment change, weekly jobless claims, and ISM Manufacturing PMI will be featured in the U.S. economic docket. 

EU: The European Central Bank will publish November private loans and M3 money supply figures on Thursday.