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Contraction in Manufacturing highlights global slowdown

Contraction in Manufacturing highlights global slowdown

The Eurozone’s third bailout for Greece is likely to be smaller than the initially envisaged 86 billion Euro. This is because the European Central Bank’s (ECB) stress test of Greek banks showed that Greece’s banks need to raise more than 14 billion Euro of extra capital to cover mounting unpaid loans. This is chiefly due to the rising number of Greeks unable or unwilling to repay their debt, after a dispute over reforms between the leftist government and international lenders almost saw Greece leave the Euro. Mario Draghi repeated the ECB’s intention to ease policy further, but its tone on a further reduction of the deposit rate was less outspoken.

Sterling strengthened against the Dollar last Friday after there was wide based weakening of the Greenback following weaker than expected personal spending data. The Pound could look to further extend its gains this morning through the release of the October manufacturing PMI. Recently, growth momentum in this part of the economy declined rather sharply. A similar or slight improvement to the previous 51.5 figure could further strengthen GBP. Increased strength of Sterling is, however, hurting exports as British products are more expensive overseas.

The services sector is more important for UK growth than the manufacturing one. We look to Thursday now to get the Bank of England’s (BoE) take on recent data and how this may affect their decision on when to hike rates.  

Friday’s weakness from the US Dollar that allowed the likes of the Euro and the Pound to gain on the back of it and post gains on the short term. Cable (GBPUSD) has been far more vocal last week and its reaction to the recent Dollar weakness was an impressive rally higher. Just on Friday the currency rallied about 150 pips to trade as high as 1.5450 after exiting a descending trend that had brought the rate down to 1.5240 at some point. It will be very interesting to see whether the Pound will be able to hold on these gains, the expected PMI reports are predicted to print at encouraging levels so even though the currency is overbought at this point the short-term bias remains bullish.

China has driven concern into the minds of traders once more with official manufacturing PMI below estimates at the weekend and also below the key 50 point with 49.8. However the impact of this has been slightly reduced by the unofficial Caixin manufacturing PMI for China which came in ahead of expectations, albeit still below 50 at 48.3.

Data to watch: 9.30am UK Markit Manufacturing PMI (Oct), 3pm US Institute for Supply Management (ISM) Manufacturing Index & Construction Spending.

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