UK Manufacturing Sector Unexpectedly Contracts
On a relatively light economic calendar day globally, the just published UK manufacturing PMI indicated that activity in the nation’s manufacturing sector surprisingly contracted in April, following an uptick in the previous month.
Going forward, today’s publication of the European Commission’s (EC) economic growth forecast for the Euro zone will attract considerable market attention. Also on tab will be the Euro region’s producer price index which is anticipated to show producer prices ticking up for the first time since April 2015. In the US, investors will eye the IBD/TIPP Economic Optimism index and ISM New York index, as well as a speech by a member of the Federal Open Market Committee (FOMC) for further clues.
Pound Sterling – UK Markets
The Pound is trading on a weaker footing against the shared currency this morning, after the just out data showed that the UK’s manufacturing PMI for April contracted for the first time in three years. Meanwhile, the possibility of Brexit looks a little subdued at the start of this new month as the nation moves closer to the European Union referendum. Yesterday, the Pound - US Dollar currency pair closed just below the crucial 1.47 mark, after data showed that the US manufacturing sector barely grew in April.
On Friday, data indicated that UK mortgage approvals declined to a three-month low level, while net consumer credit expanded strongly in March. Household borrowing on credit cards and loans rose at its fastest pace in eleven years, raising fears of a consumer credit bubble. On the other hand, home loan approvals surprisingly declined for the second consecutive month in March. Looking ahead, investors will concentrate on the UK’s house price index along with construction and services PMI data, due this week.
US Dollar – US Markets
The greenback extended its losses against the Euro and the Pound in yesterday’s session, as the latest batch of data indicating a slowdown in the US manufacturing sector made it highly unlikely that the US Federal Reserve (Fed) will hike interest rates at its June policy meeting. The ISM manufacturing index for April came in weaker than expected, highlighting the hard battle being fought by the US manufacturing sector to get out of the persistent rut. A similar industry gauge for March remained steady at its preliminary reading. The set of disappointing manufacturing reports followed closely on the heels of last week’s data which showed that US consumer spending only slightly advanced in April, while the economy expanded at a slower than expected pace during the first three months of this year. Providing some respite, US construction spending rose to its highest level in over eight years, indicating that the sector will continue to be an oasis for the economy.
Going ahead, investors will look forward to the IBD/TIPP economic optimism index and a speech by the Cleveland Fed President, Loretta Mester, due later today.
Euro – European Markets
The common currency continued to trade higher against the greenback this morning, adding to gains from the previous session. Currently, the Euro - US Dollar currency pair is trading just below the 1.16 mark, at a more than 1-year high level. In a few minutes, the Euro zone’s producer price index will be published, however, the data will be easily overshadowed by the European Central Bank’s (ECB) growth forecast scheduled to be published later today. Currently, the Euro has continued its upward momentum against the Pound after UK manufacturing activity unexpectedly contracted in April.
Yesterday, the ECB President, Mario Draghi, defended the low interest rate approach adopted by the central bank in his speech at the Annual Meeting of the Asian Development Bank in Frankfurt. Moving ahead, investors will look forward to tomorrow’s data with major releases in the form of services PMI by Markit for the Euro zone and its peripheries and retail sales data for the Euro region. Also on tab will be tomorrow’s publication of trade data for the second largest economy of the Euro zone.
Other Currencies – Highlights
The Aussie Dollar tumbled against the greenback this morning after the Reserve Bank of Australia (RBA) surprisingly cut the official cash rate to a new historic low level of 1.75%, in its quest to insulate the economy from creeping deflation. In a statement accompanying the decision, the RBA Governor, Glenn Stevens, pointed out that the unexpected weak inflation numbers over the first three months of the year triggered the move. The RBA decision came just after early morning data showed that Australia’s building approvals surprisingly advanced in March, rising for the second consecutive month.
Meanwhile in China, Australia’s largest trading partner, a private gauge of nationwide factory activity painted a sombre picture after it unexpectedly declined in April, with the index languishing in contractionary territory for the fourteenth consecutive month. The indicator worsened on all conditions, thus reviving doubts over the health of the world's second largest economy.