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UK Stockpiles and the Yen rockets

UK Stockpiles and the Yen rockets

GBP
The UK manufacturing PMI beat forecasts with a six-month high of 54.2 for December, up from a revised 53.6 previously. Finished goods produced the second highest print in the 27 years the data has been produced and new orders strengthened significantly. IHS Markit commented that there was evidence of strong stock building during the month as a precaution ahead of potential Brexit-related disruptions. Although input price inflation eased to a 30-month low, there was a faster pace of output price increases. Sterling failed to benefit much from the data due to concerns that inventory building would not provide sustained support in the event of a No-Deal Brexit.

Political uncertainty also returned despite parliament being in recess until next week and the media suggested Theresa May was still looking for further concessions from the EU. The Pound fell below the 1.2600 mark on the Dollar before recovering slightly while the Euro settled around 1.1110. The British Chambers of Commerce also reported weak Q4 service sector growth.

Global currency moves were the main event with a flash crash around 10pm, most likely triggered by low liquidity and fears of a global economic slowdown causing the Japanese Yen to soar. The Euro strengthened to 1.1050 and the Pound dipped below 1.2450 (20-month lows) on the Dollar before climbing to 1.2550 at market open today.

USD

There was a marginal downward revision to the US PMI manufacturing index to 53.8 from the flash reading of 53.9 and was confirmed as the weakest reading for 15 months. Overall confidence in US growth remained fragile and futures markets indicated an increased risk that short-term rates would move lower over the next few quarters.

The Dollar, however, made a lot of headway during the day with a reversal of selling seen early in the session and the EURUSD declined to two-week lows below 1.1330 at the European close last night.

President Trump stated that the markets needed a little help from the Federal Reserve and markets remained uneasy over the outlook. After holding talks, Trump and congressional Democrat leaders failed to secure a breakthrough to end the government shutdown which reinforced market caution.

Today we see the ADP report on the US private sector employment and the US ISM manufacturing PMI, which could influence the Dollar price dynamics and also produce some short-term trading opportunities. The key focus, however, will be tomorrow’s closely-watched US monthly jobs report (Non-Farm Payrolls).

EUR

Yesterday was a bad day for the Euro, with the macro data providing a bad reading. The PMI numbers showed business slowed in Italy and France and the Eurozone number was at its lowest point since February 2016. Versus the Dollar, the Euro fell from near the 1.1500 level to nearly 1.1300 before recovering slightly to the mid 1.1300s.

There has been fairly significant volatility overnight in the Asian market which helped the Euro in its slight recovery. There is also the fear that a lack of Chinese demand will hinder German exports, leaving confidence in the single market fragile.

Only two real pieces of data are due out today and they are from across the pond. The ISM manufacturing PMI is the only one of note. All eyes are focussed on tomorrow’s news, which should provide an interesting reading.

Data to watch:

09:30 GBP PMI Construction (Dec)
13:15 USD ADP Employment Change (Nov)
13:30 USD Continuing Jobless Claims (Dec 21)
13:30 USD Initial Jobless Claims (Dec 28)
15:00 USD ISM Prices Paid (Dec)
15:00 USD ISM Manufacturing PMI (Dec)
15:00 USD Construction Spending (MoM) (Nov)

 

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