December’s preliminary manufacturing PMI dropped to 47.4, below forecasts of 48.9 and down from November’s 48.9. The service sector PMI also failed to meet forecasts, dropping to 49.0 from 49.3 previously. Companies surveyed highlighted political uncertainty, Brexit indecision and weak global demand. Given the recent political clarity the final PMI readings will be significant for confidence. The Pound had weakened in advance of the data releases and drifted marginally lower after the release.
Sterling volatility remained throughout the day as Pound rallies attracted selling interest and global risk conditions added little support. Outgoing Bank of England Governor Mark Carney stated that the risks of a disorderly (hard) Brexit had declined.
Sterling dropped sharply overnight on reports that the government would make it legally binding to complete the Brexit transition phase at the end of 2020; no extensions. Some have interpreted this as preparing the way for a hard brexit if the comprehensive trade negotiations can’t be completed in 11 months. Unease led the Pound to below 1.3250 on the Dollar before a technical recovery while the Euro dipped below 1.1905 before fading.
New York Empire Manufacturing figures edged up to 3.5 from 2.9 previously. Although new order growth slowed and unfilled orders continued to drop overall companies were more optimistic. US preliminary manufacturing PMI dropped fractionally to 52.5 from 52.6 in December and services PMI pushed to 52.2, 5 month highs, on new orders growth. NAHB housing figures hit a 20-year high of 76 for December from 71 previously. The data increased confidence in the outlook but had little impact on the Dollar. The Euro settled just below 1.1150 against the Dollar and is little changed at market open this morning.
German manufacturing PMI dropped further with 43.4 for December, failing to meet consensus forecasts of 44.5 and well below the 50 mark (mid-point between growth and contraction). The service sector PMI showed slight improvement but the composite index showed no change. Eurozone manufacturing PMI declined to 45.9 from 46.9 and despite a slight improvement in services PMI, overall the data dented hopes of a Eurozone recovery. The German Central Bank forecasted that output could stagnate in Q4 of 2019. The German economy had been surprisingly resilient but the decline in exports was likely to continue even if conditions were starting to stabilise.
Data To Watch
09:30 - GBP - Average Earnings Index
13:30 - USD - Building Permits
19:15 - GBP - BOE Financial Stability Report
Posted in Daily Market News on Dec 17 2019