Headlines
- UK manufacturing PMI impresses – Cheap oil boosts factory output.
- Pound loses out to single currency – Eurozone manufacturing prints at 51.0.
- CAD up 3 cents against Pound – Relief rally due to higher oil prices.
- US manufacturing decelerates – ‘Greenback’ remains in demand.
Sterling
There were two key events on the UK economic calendar yesterday: the release of January’s manufacturing PMI report and British Chancellor George Osborne’s first meeting with new Greek finance minister Yanis Varoufakis. Neither yielded the result that most had been expecting.
The UK manufacturing PMI rose unexpectedly from 52.5 to 53.0 in January, helped in part by the recent slide in oil prices which brought purchasers’ prices down at the steepest rate since May 2009. Factory output was also bolstered by a surprise increase in export orders but firms were wary that ‘one swallow does not a summer make’. Despite the optimistic tone of the report, the Pound weakened across the board yesterday.
And whereas many political and economic commentators felt that the suave ultra-left Varoufakis would clash with the ‘Right Honourable’ Chancellor and his Magdalen College charm, the talks appeared to take place on amiable terms. After the meeting, Osborne stated that it was ‘important [for] the Eurozone [to have] a better plan for jobs and growth’ in Greece. The lack of conflict left the media mulling over the contrast in attire of the two politicians (Osborne wore a suit, that I’m told was a tad too small for him, and Varoufakis rocked an unbuttoned, tieless electric blue shirt and a ‘drug-dealer’s coat’).
The Pound dipped in value against the Euro yesterday, posting a -0.8 cent daily decline even though British manufacturers comprehensibly outperformed their rivals on the other side of the Channel.
The report showed that factories in the Eurozone posted meagre growth of 51.0 in the first month of 2015. The weak Euro, which has fallen -6% already this year, was seen to have had a little bit of a positive impact on exports (making them cheaper to foreign buyers) but the sector still saw a deceleration in export orders compared to December.
It will be interesting to see whether sentiment improves in the region this month following the European Central Bank’s announcement of Eurozone QE. However, the psychological boost of further stimulus could be counteracted by ‘Grexit’ concerns.
The Pound to US Dollar exchange rate weakened by around a third of a cent yesterday. The move appeared to be driven by speculation, as Federal Reserve rate hike bets bolstered the appeal of the ‘Greenback’ even though data pointed towards a slowdown in domestic output.
The headline ISM manufacturing index slid from 55.1 to 53.5, confounding expectations of 54.5, and the construction spending index missed forecasts of 0.7%, instead printing at 0.4%. But, just like the softer-than-anticipated fourth quarter growth print on Friday, the disappointing data was unable to dampen global demand for the ‘Greenback’.
Canadian Dollar
A rare rise in oil prices helped kick-start a relief rally for the Canadian Dollar yesterday. Canada’s most lucrative export, crude oil, appreciated by around 2.5% on news that US rigs were cutting back on investment due to oversupply in the market. The uptick in demand for crude prompted a glut of traders to lock-in profit from the five-and-a-half-year high Pound to Canadian Dollar exchange rate, causing Sterling to drop by three whole cents against the ‘Loonie’.
The Australian Dollar rallied by around 1.5 cents against the Pound during the London session yesterday as investors decided to take profit on the strong GBP/AUD rate, which had stood at a five-year high. Investment data showed that there were 245% more ‘Aussie’ Dollar option trades made yesterday than on the average of the past five Mondays, reflecting the level of anxiety in the run-up to the Reserve Bank of Australia’s latest policy decision.
The New Zealand Dollar followed the rest of the commodity bloc higher against Sterling yesterday, appreciating by around 1.5 cents against the Pound. Later this evening labour market data is expected to show that the New Zealand unemployment rate sunk from 5.4% to a near six-year low of 5.3% in the fourth quarter of last year, which could send the ‘Kiwi’ higher. On the other hand, a speech from Reserve Bank of New Zealand Governor Graeme Wheeler could negatively impact the high-beta currency if the central bank leader opts to strike a dovish tone.
Data Released Today
09:30 GBP Markit/CIPS UK Construction PMI (JAN) 57.0
15:00 USD Factory Orders (MoM) (DEC) -2.2%
21:45 NZD Employment Change (YoY) (4Q) 3.0%
21:45 NZD Unemployment Rate (4Q) 5.3%