Fed’s Beige Book Report in Focus
The month of June kicks off with a busy schedule of economic updates. The just out UK manufacturing PMI data posted an uptick in May, returning to the expansionary territory. Earlier in the session, a string of final manufacturing Purchasing Managers’ Index (PMI) releases for May across the Euro zone showed a mixed trend. The Euro zone manufacturing PMI confirmed its preliminary reading whereas Germany’s PMI posted a fall.
Across the Atlantic, the US Federal Reserve’s (Fed) rate increase speculation will return to the forefront with the release of the central bank’s Beige Book survey of regional economic conditions for May. The April report had indicated stronger wage growth and gains in customer spending. In the US data docket, the ISM manufacturing and the Markit manufacturing PMI data for May will be eyed.
Pound Sterling – UK Markets
The Pound is trading in a tight range against the US Dollar this morning. The just out data showed that Britain’s Markit manufacturing PMI rose above expectations in May, after entering into contraction territory for the first time in three years during the previous month. However, the nation’s mortgage approvals and consumer credit declined more than expected in April. Data released earlier in the session showed that British monthly house price growth advanced less than the median forecast in May.
Sterling dipped to a one-week low level against the greenback and the shared currency yesterday after two recent polls showed that those campaigning for an exit from the European Union (EU) had taken the lead. In recent weeks, the Pound has been incredibly sensitive to changes in the outcome of polls, as the elephant in the room, or to be precise, the UK's EU referendum is now inching closer. On the data front, Britain’s shop prices continued their downward spiral in May as food prices went back into deflation.
US Dollar – US Markets
The greenback gained ground against the shared currency and the Pound yesterday following the release of a mixed bag of US economic data. Consumer spending in the US, which accounts for more than two-thirds of the nation’s economic activity, advanced above expectations to record its biggest increase in more than six years in April as households stepped up purchases of automobiles. However, the nation’s consumer confidence index surprisingly dropped for the second consecutive month in May to its lowest level since November 2015, as consumers remained apprehensive about the nation’s long-term economic outlook. Further, the core personal consumption expenditure index, the Fed’s preferred gauge to track long-term inflation, once again stubbornly remained under the Fed's 2.0% target, after languishing at the same spot for over the last three years. Separately, manufacturing activity in the Chicago-area contracted at the fastest pace in three months in May.
Looking ahead, the US Fed will release its Beige Book report on US economic conditions, later today. Additionally, investors also look forward to the US manufacturing PMI data for May.
Euro – European Markets
The Euro is trading on a strong footing against its major peers this morning. Data showed that the
Euro zone’s final Markit manufacturing PMI remained steady in May. However, Germany’s final manufacturing PMI unexpectedly declined during the same month. Moreover, Italy’s manufacturing sector dipped to its second-lowest level in the past fifteen months.
The Euro ended lower against the US Dollar yesterday, after the Euro zone’s consumer price index (CPI) dropped for the second consecutive month in May, despite several measures taken by the European Central Bank (ECB) policymakers to catapult prices into positive territory. Headline inflation has been below the ECB’s target of ‘below, but close to 2.0%’ since early 2013. Meanwhile, core inflation, that excludes energy, food, alcohol and tobacco, slightly rose during the month. At the same time, the region’s jobless rate remained stable in April at its lowest level in more than four years. Elsewhere in Italy, the GDP growth for the first quarter of 2016 grew in line with investor expectations. Further, the nation’s CPI rebounded above expectations on a monthly basis in May.
Other Currencies – Highlights
The Australian Dollar powered up against the greenback this morning after Australia’s economic growth rate accelerated in the first quarter, propelled by strong exports and household spending, pushing naysayers firmly into the corner as expectations of another rate cut by the Reserve Bank of Australia was scaled back. Earlier in the session, data showed that the nation’s AiG manufacturing index posted its eleventh consecutive month of expansion in May, marking the longest streak of gains since 2006. Additionally, Australian building approvals surprisingly recorded the third consecutive gain in April.
Elsewhere in China, Australia’s largest trading partner, the official non-manufacturing PMI weakened in May. Further, the nation’s manufacturing PMI index unexpectedly remained steady in May, suggesting that the world’s second-largest economy is still struggling to gain momentum. Moreover, a private gauge of China’s factory activity weakened last month. Next of relevance to investors is Australia’s trade balance and retail sales data, both for the month of April, due tomorrow.