UK Manufacturing Declines to a 34-month Low
Today is a busy day for economic data releases, majority of which are updates on the manufacturing sectors around the globe. The just published UK PMI report showed that Britain’s factories had their worst month in almost three years last month, highlighting weakness in economic activity and underscoring the Bank of England’s (BoE) recent dovish stance.
The purchasing managers’ index (PMI) for the manufacturing sectors in most of the economies across Europe dipped below the anticipated reading for February. The only exception was the German manufacturing industry, where activity growth was slightly higher than initially thought for the previous month. In the session ahead, spotlight will turn towards the US ISM Manufacturing data which is estimated to show that the pace of contraction accelerated in February.
Pound Sterling – UK Markets
The Pound - US Dollar currency pair briefly halted its upside momentum after the just released UK PMI report indicated that manufacturing activity growth slowed the most in three years for February. Britain’s factories faltered last month as domestic demand slowed and export orders weakened. Today’s data highlights the ongoing fragility of UK economic recovery at the start of the year and provides support to the BoE’s recent dovish stance. Speaking at the weekend G-20 meeting of policymakers, the BoE Governor, Mark Carney, had reiterated that economic conditions were not strong enough for an interest rate rise. Going forward, next week’s industrial and manufacturing production data will provide further insights into the health of the UK manufacturing sector at the start of 2016. Sterling investors seem to have shrugged off the dismal UK factory activity print as the Pound has currently resumed its upside move against the greenback.
Moving ahead, investors will shift their focus towards tomorrow’s UK construction PMI data which is expected to show a slight improvement in activity in the sector for February.
US Dollar – US Markets
The US Dollar nudged lower against the Japanese Yen yesterday, following weaker than expected economic data in the US. Contracts to buy previously owned homes in the US declined to their lowest level in January from a year ago, amid continued shortage of properties in the market. Additionally, the Chicago business activity report indicated that the index plunged in February, suggesting that the sector unexpectedly slipped into contraction. Data showed that manufacturers were under particular pressure due to a substantial decline in production and new orders, amid waning global demand. Looking back at the Philly Fed and Empire State regional manufacturing indexes which also remained in contractionary territory in February, the US industrial sector is likely to have acted as a drag on economic growth in the first quarter.
Today, the first look at the ISM Manufacturing Index for February is anticipated to tell a similar story that the manufacturing trend in the US remains weak. In addition, the revised Markit Manufacturing PMI and construction spending data will be eyed to gauge the health of the economy in the first quarter of 2016.
Euro – European Markets
The Euro is trading lower against the US Dollar this morning. Meanwhile, investors seem to be digesting a series of downbeat manufacturing PMI reports that were published earlier today in Europe. The results are likely to have negatively impacted hopes of any meaningful growth in Europe at the beginning of the year. Initial reading of the Italy and Spanish manufacturing sectors in February showed that growth slowed more than expectations as output and new order growth faded. The final manufacturing PMI numbers indicated that France and Germany hovered close to stagnation levels in February. For the Euro area region, although the sector modestly expanded from earlier estimates, growth was slowest in a year last month, fuelling worries about the start of the overall economy in the first quarter. Lackluster domestic demand, slowdown in the growth of order books, exports and output added to create a worsening picture for the Euro zone economy.
This data will likely put pressure on the central bank to take further stimulus action in its upcoming European Central Bank meeting to avoid another economic downturn.
Other Currencies – Highlights
The Aussie Dollar turned lower against the US Dollar after disappointing economic data in Australia and poor print from the Caixin manufacturing PMI in China. The Australian Bureau of Statistics reported that the fourth quarter current account deficit was wider than expected, adding to downside pressure on the income component of GDP. Additionally, building approvals in Australia fell more than projected in January, signalling that the pipeline of planned housing construction is narrowing. Today’s updates highlights that a decline in building construction could impact on jobs growth and would also weigh on the nation’s economic activity.
The Reserve Bank of Australia (RBA) today decided to keep its benchmark interest rate steady, meeting expectations and extending the tone from the previous meeting that a near term rate cut could be ruled out. In the statement, the RBA Governor reiterated that lower inflationary pressures, moderate house price growth and Australia’s transition from its dependence on the mining sector made a case for interest rates to remain low.