Market Drivers March 1, 2013
UK PMI Plunges to 47.9 sending GBP/USD below 1.5050
German Retail Sales improve at best rate in 6 years
Nikkei up 0.41% Europe -50%
Oil $91.20//bbl
Gold $1566/oz.

Europe and Asia:
AUD AiG Performance of Manufacturing Index 45.6 vs. 40.2
JPY Jobless Rate 4.2% vs. 4.2%
JPY Household Spending 2.4% vs. 0.4%
JPY National Consumer Price Index -0.6% vs. -0.5%
JPY Capital Spending -8.7% vs. -7.0%
CHF SVME-Purchasing Managers Index 50.8 vs.52.2
EUR Euro-zone PMI Manufacturing 47.9 vs. 51.0
EUR Euro-zone Unemployment Rate 11.9% vs. 11.8%
EUR Euro-zone CPI Estimate 1.9% vs. 2.0%
GBP PMI Manufacturing 47.9 vs. 51.0
GBP Net Consumer Credit 0.6B vs. 1.1B
GBP Mortgage Approvals 55K vs. 57K

North America:
USD Personal Income 8:30
USD Personal Spending 8:30
USD Personal Consumption Expenditure Core 8:30
USD Markit US PMI Final 8:58
USD U. of Michigan Confidence 9:55
UDS Construction Spending 10:00
USD ISM Manufacturing 10:00
USD ISM Prices Paid 10:00
CAD GDP 8:30

Cable crumbled in morning London trade today diving to a fresh year to date low of 1.5012 after UK PMI data missed its mark badly suggesting that UK will not claw its way out of recession in Q1 of this year. UK Manufacturing PMI printed at 47.9 versus 50.5 eyed recording its worst reading since November of 2012 as the sector once again plunged into negative territory.

New orders fell to 46.6 from 49.7 indicating that the pace of contraction may expand in the near future. The shocking drop in UK manufacturing output indicates that the sector is suffering from steep falloff in demand despite the recent depreciation in the pound which has made UK goods more competitive in the global marketplace.

Today’s news does not bode well for UK economic growth in the first half of this year and suggests that instead of stabilizing the UK economic contraction may be worsening. The only ray of hope for cable bulls is that the weakness in manufacturing may be offset by better numbers in the service sector which a much larger part of the UK economy.

Cable was crushed on the news slicing through bids at the 1.5050 level but found support just ahead of the very psychologically important 1.5000 mark. No doubt some option defense bids as well as bargain hunting buyers will try to make stand ahead of that figure. However, the pair may see renewed pressure as North American session comes on board and the temptation to run stops continues to grow.

Irrespective of the intra-day jockeying cable remains a wounded animal in the currency market and should see further selling if UK economic data continues to disappoint. The austerity policies of the Cameron administration are failing much like everywhere else and the UK economy shows no signs of improvement which is likely to turn the BOE even more accommodative over the next few months. Therefore the fall of 1.5000 is now simply a matter when rather than if.

In Europe the data in Germany was better than expected, but it was offset by weaker economic numbers everywhere else on the continent. German Retail Sales registered their largest monthly gain in six years rising 3.1% in January versus expectations of 0.9%. In the month prior Retail Sales fell sharply by 2.1%. Overall sales were up an impressive 2.4% on a over year basis.

The surprisingly strong rebound in consumer demand dovetails with recent improvement in business sentiment and suggest that Europe’s largest economy may be on its way to recovery in Q1 of this year. In contrast to the rest of the EZ, German labor demand has been solid as unemployment remains at a two year low and it is clearly translating into stronger consumer spending which should fuel GDP growth this quarter.

The EUR/USD however weakened as the day progressed dropping to a low of 1.3021 in mid-morning European dealing as currency markets remained cautious keeping one eye on Italy, where there has been no progress so far in the wake of Monday’s election that resulted in a stalemate.

The latest economic news from Italy was dour as well with unemployment rate increasing to 11.7% from 11.1% expected. The increase in Italian rate also caused the broader EZ unemployment numbers to rise to 11.9% from 11.8% the month prior while CPI contracted to 1.8% from 2.0% anticipated. The news caused some market participants to anticipate a possible rate cut from the ECB as broad EZ demand in Q1 is clearly contracting.

The pair also remains under pressure as we enter North American trade and could see a run towards the 1.3000 level as the day proceeds, especially if the situation in Italy remains in a quagmire.

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