UK Manufacturing Sector to Drag on Q4 Growth
After a quiet Monday, the pace of global economic releases has picked up today starting with the just out update on UK industrial and manufacturing activity. Weaker outlook for manufacturing showed up in today’s report with output unexpectedly falling in October. As the data has not left any room for optimism for now, the Bank of England (BoE) on Thursday would be little encouraged to show any willingness to raise its benchmark interest rate in the near term.
Second key data in line waiting for release is the revised estimate of Euro zone’s third quarter GDP data which is expected to confirm slower economic growth in the region. This will be followed by the NFIB small business optimism index and JOLTS job openings report in the US later today.
Pound Sterling – UK Markets
This morning, Sterling commenced trading on a weaker note against the major currencies. On the macro front, the just out industrial and manufacturing output numbers offered little hope that the sector would contribute to growth in the fourth quarter. A decline in the repair and maintenance of aircraft and spacecraft led to contraction in the nation’s manufacturing sector for October. On the other hand, industrial output was marginally up on the back of stronger production of oil, water and power. One thing is certain that the pace of economic recovery in the fourth quarter will continue to rely primarily on a strong services sector. Additionally, the Confederation of British Industry had last month in its industrial trend survey painted a dismal outlook for manufacturing. Weak output growth and a gloomy outlook for Britain’s factories are bad news for the BoE which is scheduled to meet this Thursday to announce its latest interest rate decision.
In more negative news, Britain’s retailers had the worst November since 2011 as online retailers stole the limelight with enticing Black Friday bargains and making dents in footfall activity.
US Dollar – US Markets
The US Dollar seems to have briefly halted its bullish run and is trading lower against the Euro and the Japanese Yen this morning. Datawise, today’s US macro calendar will receive some attention ahead of next week’s Federal Reserve’s policy setting meeting, which might open door for the first interest rate rise in nearly a decade. Investor focus would be data on the US small business growth which will be followed by a government survey on job openings. Last week’s upbeat news on another rise in the US nonfarm payrolls suggested that the economy is on a stronger growth path. Markets will eye today’s economic releases to see whether they deliver similar optimism for the economy. Expectations are for the small business sentiment data to show a slight improvement in November, but the JOLTS job openings report could be softer for October.
Yesterday, St. Louis Fed President, James Bullard justified an increase in interest rate as soon as next week, and added that attention will then shift towards the actual movement in inflation to decide on the future rate path.
Euro – European Markets
Earlier today, Euro’s recovery gained traction against its key peers. However, recovery in the Euro – US Dollar currency pair was marginal compared to the highs reached in the previous week. The broader picture hence remains unchanged as prospects of the Fed raising key interest rates in its next week’s monetary policy meeting are supportive for the greenback.
In the meantime, on the macroeconomic front, revised third quarter Euro zone growth data is scheduled for release in a short while. The GDP print is expected to confirm that growth in the Euro area eased from the three months ended June 2015. The stagnant recovery in the Euro zone is likely to put more pressure on the European Central Bank (ECB) to expand its stimulus measures in the New Year. The ECB, in the previous week, had disappointed investors by its less than expected dovish approach. However, during the weekend, the ECB President Mario Draghi assured markets that the central bank was open for further easing if the outlook for economic growth and inflation worsens.
Other Currencies – Highlights
The Japanese Yen is currently trading on a firmer footing against the US Dollar as market participants continue to cheer stronger than expected GDP data from Japan. The Japanese economy erased fears of a technical recession for the third quarter that was fuelled around three weeks ago after growth was revised from an annualised fall of 0.8% to an annualised rise of 1% late yesterday. Business investment was the main growth driver in the three months ended September, providing support to the Bank of Japan’s (BoJ) recent stand to keep its monetary policy intact this autumn and diminishing worries of further easing in the immediate future. Moreover, dismal Chinese trade data earlier today triggered concerns about the health of large economies, coercing the greenback further into the red zone against the Japanese Yen.
Meanwhile, earlier today, Japan’s economy watchers survey data revealed that a measure of people’s assessment of the economy unexpectedly fell in November, to record its weakest reading since January this year. Additionally, the nation’s outlook survey also reported a decline in November after staying stable in the last month.