Has Cameron bent the EU to his will?
UK manufacturing growth increased last month, beating expectations, but exports fell according to the latest Markit Purchasing Managers’ Index (PMI). The index rose to a three-month high of 52.9 in January from 52.1 in December. Rob Dobson, a senior economist at Markit, commented, “Even after recent easing in the exchange rate, a number of manufacturers are still finding that the strength of the Pound against the Euro is impacting order inflows.”
Against the Dollar, the Pound jumped to the 1.43 range during the day, then further extended its gains in the US session as Dollar weakness ensued off the back of poor US PMI and personal spending data.
A GBPUSD corrective rally from the multi-year lows could receive another boost today if the construction PMI for January prints more than the estimated 57.6. A better than expected UK construction PMI would be a welcome development.
The Eurozone manufacturing sector started 2016 on a softer growth footing, with rates of expansion in output, new orders and new export business all easing during January. Markit’s data showed factory activity across the Eurozone slowed at the start of 2016, dropping to 52.3 from 53.2 in December. An upturn in orders failed to materialise despite deep price cuts.
Eurozone and German unemployment figures will be in focus today. The German unemployment levels should illustrate a stable performance for the strongest economy of the Euro area, while the same report for the Eurozone is expected to fall to 10.4% from 10.5%. The UK Construction PMI released around the same time will conclude the events of the day as we are looking at a very light economic calendar for the day ahead.
Higher US interest rates have contributed to a massive outflow of capital from China, as investors take their money in search of higher and safer returns elsewhere. As the Chinese economy slows down and the Renminbi devalues, people are moving money out of China however they can. In 2015, £470 billion left the country according to the Washington-based Institute of International Finance and the pace has quickened since the US rate hike. Thats some way above the IIF estimate of £375 billion and will influence further monetary policy as further Renminbi devaluations will exacerbate this.
And finally, later today David Cameron is hoping to unveil his draft proposal for negotiating a better EU deal. Some of the main points are: a “red card” veto system for new EU legislation and a “handbrake” on welfare payments to EU migrants. Number 10 is hoping for a deal on 18-19th February to pave the way for a June “Brexit” referendum.
Data to watch: 08.55am German Unemployment (Jan). 09.30am UK PMI Construction (Jan). 10am Eurozone Unemployment (Dec).