Market Drivers September 1, 2016

UK Manufacturing PMI jumps to 53
EUR Final PMIs subdued
Nikkei 0.23% Dax 0.73%
Oil $44/bbl
Gold $1309/oz.

Europe and Asia:
CNY Manufacturing PMI 50.4 vs.49.9
AUD PCE -5.4% vs. -4.0%
AUD Retail Sales 0.0% vs. 0.2%
EUR PMI Manufacturing 53.7 vs. 53.8
GBP UK PMI Manufcaturing 53.3 vs. 49.1

North America:
USD Weekly Jobless 08:30
USD NonFarm Productivity 8:30
USD ISM Manufacturing 10:00

Cable soared nearly 100 points in the wake of much better than expected UK Manufacturing PMI number that returned back to expansionary territory for the first time since the Brexit vote.

UK PMI rose to 53.3 far better than 48.9 eyed as the headline saw the biggest gain in 25 years. According to Markit, “All three of the market groups covered by the survey returned to growth, with the strongest expansion registered in the consumer goods sector.

Underpinning the scaling up of production volumes was a marked increase in the level of new work received. New business rose at one of the quickest rates in the year-so-far, as companies benefited from improved inflows of new work from both domestic and overseas clients. There were also reports of stronger demand, product launches and clients committing to new and previously postponed contracts. “

As of now UK is enjoying the best of both worlds as remains in the European Union while the manufacturing sector benefits from sharply lower exchange rates. It’s doubtful this state of “uncertain bliss” will be allowed to remain much longer. The Germans, who ironically enough are suffering the most from Brexit so far, are unlikely to tolerate this state of affairs for much longer and as for the UK government of PM May, the attitude appears to be to proceed with the Brexit despite the opposition of the business sector. Ms. May ruled out the possibility of a Parliamentary vote on Brexit, thus eliminating one of the surest ways to delay the plan.

For now the market is clearly enjoying the UK economic rebound and cable shorts are being squeezed mercilessly today with GBP/USD likely to test the 1.3300 level as the day proceeds. However, the more certain the prospects of an article 50 trigger, the more likely the possibility that cable could fall drastically again as UK proceeds to isolate itself from the European union.

Elsewhere today the data out of China showed some slow improvement as CNY Manufacturing PMI popped above the 50 boom/bust line for the first time in 3 months. The news is likely to keep RBA on the sideline for the time being as the Asia Pacific region continues to show moderate growth.

In North America today the market will focus on ISM Manufacturing data with most analysts looking for a slight dip to 52 from 52.3. Any slight variation is unlikely to have much impact on the dollar which continued to rise against the yen hitting a high of 103.65 in morning European dealing. So far US data has been supportive and markets are focused on tomorrow’s NFP report which could sway the Fed to move on rates as early as the meeting in September. If ISM shows no surprises, the USD/JPY could push higher as the day progresses in anticipation of such a move.

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