UK manufacturing PMI beat consensus forecasts in rising to a 6-month high of 49.6 for October, up from September’s 48.3. Orders and production declined but did get a boost from stock-building ahead of October 31st hard deadline for EU exit. Exports improved modestly but the Brexit extension brings the risk of dampening activity late in 2019. Prime Minister Johnson refused the offer of an alliance with the Brexit Party and Sterling slipped on increased fears that the current Brexit deal would be rejected.
Sterling was held below the 1.3000 mark on the Dollar while the Euro climbed to 1.1580 after finding support near 0.8600. The Lloyds business barometer rose to 6 in October, up from 2 in September and the Pound should benefit from increased confidence in the global growth outlook. Futures market data recorded bets against the Pound had dropped to 5-month lows, which slightly lessens the chances of a GBP spike on positive developments.
Slightly increased confidence in the global economy curbed Dollar support over the weekend with the currency remaining subdued this morning with the Euro around 1.1165 amid tight ranges.
The US non-farm payrolls increased 128,000 for October, above consensus forecasts of 90,000 and there was a notable upward revision to 180,000 for September from 136,000 reported previously. There was an impact from the General Motors strike as the motor vehicles sector recorded a monthly job decline of over 40,000 on the month which suggested solid underlying job gains. Unemployment increased to 3.6% from 3.5% which matched market expectations as the participation rate ticked higher. Average hourly wages increased 0.2% on the month, slightly below forecasts of 0.3%, although the annual rate held at 3.0%.
The October ISM manufacturing index improved slightly to 48.3 from 47.8 previously, although this was slightly below consensus forecasts and the third successive reading in contraction. New Orders also remained in contraction territory despite a slight monthly improvement while production declined at a faster pace. The order backlogs, employment, and price components all remained in contraction territory which maintained concerns over the manufacturing outlook.
The US and China trade optimism could likely bolster a bullish set up in the Euro against its Dollar counterpart. The pair is currently trading at 1.1145. The common currency dipped to a low of 1.1130 during the trading session on Friday after the US Nonfarm Payrolls beat expectations. The drop, however, was short-lived and the currency pair ended the day on a positive note at 1.1165. The path of least resistance, therefore, looks to be to the up-side. The bullish pressures could be strengthened by the US-China trade optimism and the resulting risk-on sentiment in equities.
Germany, the Eurozone's manufacturing powerhouse, has taken a big hit due to the trade war between the US and China. The trade optimism, therefore, could bode well for the Euro and the German economy. On the data front, Manufacturing PMI numbers are due for release across the Eurozone this morning. Eurozone's Sentix Investor Confidence is also due alongside new ECB President Christine Lagarde making her 1st speech later this evening.
Data to watch
10.30 EUR - Sentix Investor Confidence
19.30 EUR - ECB President Lagarde speaks
Posted in Daily Market News on Nov 4 2019