Focus on Manufacturing PMI
The preliminary set of October PMI figures hit the wires in Europe earlier today. Economic news flow out of the 19-nation currency union indicated that business activity in the Euro zone topped expectations in October as new orders for service firms flooded in at the quickest pace since April this year. The upbeat private sector activity data will likely be noted by the ECB, which left its key rates on hold at its policy meeting yesterday but left the door open to the possibility of further easing as soon as December.
Across the Atlantic, flash manufacturing PMI is due for release later today. In the UK, the next major data publication will be the first estimate of third quarter GDP growth which is scheduled for early next week.
Pound Sterling – UK Markets
Yesterday, September retail sales in the UK recorded its strongest monthly growth in almost two years, supported by falling in-store prices. In addition, hosting the Rugby World Cup provided a timely boost to sales and helped the retail industry to set a solid ground ahead of the all-important Christmas period. Markets had anticipated some bounce back in retail sales for September after private-sector surveys by the BRC and the CBI had hinted at growing optimism among consumers. The Pound soared to briefly touch the 1.55 mark against the US Dollar after the upbeat retail sales data, before erasing gains and slipping below the 1.54 mark amid a sell-off in the Euro and in the other European majors including Sterling following the ECB Chief’s extremely dovish talk.
The robust retail sales figures for September are likely to have given a strong finish to the UK GDP into the end of the third quarter. However, the nation’s preliminary GDP data which is scheduled for release early next week is anticipated to show that the economy expanded at a slightly slower pace compared to the previous quarter.
US Dollar – US Markets
The US Dollar traded on a firmer footing against most of the major currencies yesterday, as a surprisingly dovish statement by the ECB President dragged the Euro and Sterling lower. Not only did the greenback benefit from the ECB Chief’s dovish remarks, but the US Dollar was also buoyed by upbeat domestic data releases. Data prints that came out in yesterday’s trading session showed that initial claims for jobless benefits continued to hover near the lowest level in four decades last week, thus painting a rosy picture of the US labour market’s health and prospects for employment growth. Also, sales of previously owned US homes for September surged to the second highest level since February 2007, signalling that recovery in the residential real estate market will support growth in the world’s largest economy.
The greenback has failed to keep its previous session gains against the Euro this morning. In the session ahead, investor focus will be on an early reading of the US manufacturing sector which is expected to show slight deterioration in activity at the start of the fourth quarter.
Euro – European Markets
Today, currency traders are probably still digesting ECB’s press conference which gave clear signals that the central bank was open to further easing. The ECB President, Mario Draghi explicitly stated that the bank’s monetary policy would be assessed at its next policy meeting in December, when it is also slated to publish its updated inflation projections.
In the meantime, the flash PMI numbers of the Euro zone and its economies that were released earlier today have provided some insights at the onset of the fourth quarter. A widely watched business survey today reported that French private sector activity picked up in October, supported by increase in activity across the nation’s both services and manufacturing firms. Meanwhile, today’s PMI numbers could be a word of caution for German manufacturers, after manufacturing activity slipped lower than estimates for October as output and new orders rose at a slower pace. In Euro zone, private sector activity growth surprisingly expanded in October, its fastest pace in two months. The Euro has edged higher against the US Dollar, post the PMI data releases.
Other Currencies – Highlights
Earlier today, the Japanese Yen partly recovered from some of its earlier losses against the US Dollar following hawkish comments by an advisor to Japan’s Prime Minister (PM), Shinzo Abe. Japan’s PM advisor, Etsuro Honda noted that currently there was no compelling case for fresh BoJ action in the form of an additional stimulus package. The advisor’s hawkish remarks might have somewhat eased speculation that the Japanese central bank was considering further easing at its October meeting. Doubts of additional stimulus measures strengthened further after the ECB President, Mario Draghi yesterday talked about the possibility of more easing in the upcoming December meeting.
Moreover, the Japanese Yen earlier today also got a boost from the latest preliminary PMI data, which showed that activity growth in the nation’s manufacturing sector was the strongest in over eighteen months. Moving ahead, spotlight will now shift towards next week’s key events - FOMC and BoJ rate decision meetings.