British Factory Activity Slows in October
Manufacturing activity takes centre stage today on both sides of the Atlantic. In the UK, the just released data showed that the nation’s manufacturing purchasing managers’ index (PMI) dipped more than expected in October.
Later today, the October figures for the US ISM manufacturing index will be out. Additionally, the US Federal Reserve (Fed) will convene for a two-day meeting today. It is widely believed that the ongoing heated political climate ahead of the US Presidential elections will keep the Fed on hold this week, to avoid disrupting markets further. However, investors will peruse the Fed’s statement for any signs of dovishness, given the high probability for a rate increase in December.
Pound Sterling – UK Markets
The Pound is trading mixed against the US Dollar and the shared currency this morning. The just out data showed that UK’s manufacturing sector activity deteriorated in October.
Yesterday, Sterling ended higher against its major peers after British mortgage approvals - a gauge of future housing market activity - surpassed market expectations and notched a three-month high level in September, suggesting signs of recovery after UK’s shock vote to leave the European Union. Separately, the Bank of England (BoE) Governor, Mark Carney acknowledged the mounting pressure and announced his decision prior to the scheduled date. He stated that he would serve one year more than the five he had committed to and will demit office in June 2019. He aims to contribute to securing an orderly transition to the UK's new relationship with Europe. British Prime Minister, Theresa May, and Chancellor, Philip Hammond, welcomed the BoE Chief’s decision to stay for an additional year.
US Dollar – US Markets
The greenback strengthened against most of its major peers yesterday. Data indicated that personal spending in the US rebounded more than expected in September, signaling momentum in the nation’s economy and bolstering expectations for an interest rate rise by the Fed in December. Meanwhile, US personal income advanced slightly less than market estimates during the same month. In other economic news, the Dallas Fed manufacturing index slightly improved in October, notching its second strongest reading since December 2014, but was unable to move into positive territory. Separately, the manufacturing activity in the Chicago region declined more than anticipated in October, marking its lowest level in five months, suggesting that the economy lost some of the momentum seen in the third quarter and dampening optimism over the US economic outlook.
The US Dollar is trading lower against the Pound and the common currency this morning. Ahead in the session, market participants will keenly watch US ISM and Markit manufacturing PMIs along with construction spending data for further cues in the greenback.
Euro – European Markets
Yesterday, the shared currency ended lower against its major peers, following a string of downbeat economic releases from the Eurozone. It all started with disappointing German retail sales data for September. Later in the day, a report released by the European Union statistics agency, Eurostat, showed that the Eurozone eked out modest growth in the third quarter, thus indicating that though the economy managed to escape falling off a cliff after the Brexit referendum, the region still remained in the throes of sluggish growth.
Separately, the Eurozone’s consumer prices edged up in October to notch its highest level in over two years, as the impact of lower oil prices waned. However, stripping out the volatile items like food, energy, alcohol and tobacco, inflation in the region remained steady. Though the headline figure is climbing, the core inflation rate is yet to move. Thus, the European Central Bank still has a long way to go before inflation is where it would like it to be.
Other Currencies – Highlights
As expected, the Bank of Japan (BoJ) refrained from introducing any new changes to its monetary policy. The central bank held the key deposit rate steady at -0.1%, and will continue to target a zero yield for 10-year Japan government bonds. The BoJ had announced in September that it would make “yield curve controls” the linchpin of its new policy framework, and step away from continuously expanding the monetary base. The only notable move made by the central bank today was to push back the timeline for achieving the 2.0% inflation goal by one year to fiscal 2018. Thus, the BoJ will not be able to achieve its inflation target before the end of Governor Haruhiko Kuroda’s term in office. In a stark illustration of its struggle to ward off the country’s entrenched deflation, the BoJ has already pushed back the time frame to attain its inflation target four times since Kuroda took office in 2013.
On the data front, Japan’s manufacturing activity advanced to a nine-month high level in October, compared to the previous month’s reading.