UK Manufacturing Activity Slows in December
The New Year has gotten off to a busy start with a string of manufacturing reports from across the globe. The just out UK survey on business activity in the manufacturing sector showed only a slight deceleration for December as export orders rose at the slowest rate since September. Additionally input prices last month were impacted by stronger Pound and lower oil costs. Separately, data showed that UK consumer credit surged in November, while mortgage approvals remain relatively subdued.
In Europe, the final manufacturing PMI came in better than the prior estimates for December, signalling a strong closure for the sector in 2015 as growth rates for output and new orders accelerated. Later in the day, early picture of the US manufacturing sector will be in focus.
Pound Sterling – UK Markets
The Pound - US Dollar currency pair has commenced the New Year on a slightly positive note, hovering just above the multi-month losses reached in the previous month which was exacerbated in the last two weeks by diminished volumes. Also, Sterling has been under pressure against the greenback as chance of an interest rate rise by the Bank of England (BoE) has reduced by softening domestic macroeconomic data and due to mounting speculation over a referendum on the decision whether the UK will remain a member of the European Union (EU).
Looking at this week’s data, it is confirmed that UK manufacturers, especially exporters, continue to face difficult times. The just out economic data showed that the manufacturing sector continued to display signs of fragility in December after posting a sharp pickup in October. In separate data, UK consumer credit grew more than market expectations for November, which is likely a result of relatively high consumer confidence, lower employment and extended low interest rates.
US Dollar – US Markets
The greenback has nudged lower against the shared currency this morning. This week, the US economic docket is stacked with the releases of manufacturing and labour market data. Market expectations are that today’s data on manufacturing which only accounts for around one-tenth of the economy, continued to exhibit weakness in December as slowing global economic growth and strong US Dollar hindered demand from overseas. The ISM manufacturing index is estimated to stay in contraction for December due to headwinds from a slide in oil prices and the strong US currency. Investors will also keep a tab on US construction spending data due today for further direction.
On the last day of 2015, the US Dollar was broadly higher against most of the major currencies, shrugging off weaker unemployment claims and Chicago PMI report. The applications for first time unemployment benefits for last week climbed to the highest level since July 2015. Also, a widely-followed gauge of factory activity in the US Mid-West unexpectedly plunged to the downside in December, tracking a large decline in new orders.
Euro – European Markets
With trading activity returning to normalcy at the start of the New Year, the better tone in the shared currency pushed the Euro – US Dollar currency pair above the 1.09 mark earlier in the day. On the macroeconomic front, the releases for Europe today began with the first look of Spain’s Purchasing Managers’ Index (PMI) for manufacturing in December. After recording a tick-up in manufacturing growth in November, today’s PMI data for December showed that the Spanish manufacturing activity continued to remain in expansionary phase, suggesting that the revival in output will continue in 2016 for the Euro zone’s fourth largest economy. Additionally, Italy’s manufacturing PMI reading for December recorded its highest reading since March 2011, suggesting continued expansion in activity for the nation’s factories. This was swiftly followed by a set of final numbers of Markit manufacturing PMI surveys from Euro zone and its two largest economies, which confirmed continued expansion of factory activity.
In the session ahead, market participants will closely monitor the flash inflation figures for December from Euro zone’s powerhouse Germany.
Other Currencies – Highlights
In the first trading week of 2016, the Japanese Yen has emerged victorious against the US Dollar, with the pair reaching a new two-and-a-half-month low earlier today. The Japanese Yen gained traction against the greenback after the final Nikkei manufacturing PMI index came in a tad higher from the previous estimates for December and unchanged from November, which was the highest reading since March 2014. Marketing activity in Japan expanded in December at the same pace as in the previous month as new orders accelerated at a faster rate. Today’s monthly update on manufacturing signals that the nation’s economy maintained growth momentum for the fourth quarter of 2015.
Later in the day, amid the absence of further macroeconomic data in Japan, US manufacturing sector will be under the radar, as reports by the ISM and Markit’s gauges are due today for further direction in the currency pair.