Market Drivers February 2, 2015
Chinese PMI Slips below 50
UK PMI better but EUR/GBP flows reverse gains
Nikkei -0.66% Europe -.32%
Europe and Asia:
CNY PMI Manufacturing 49.8 vs. 50.3
EZ Final PMI 51 vs. 51
UK PMI 53.0 vs. 52.9
USD PI/PS 8:30
USD ISM Manufacturing 10:00
It’s been a topsy turvy night of trade for GBP/USD with the pair first pushing higher off slightly better than expected headline PMI Manufacturing reading only to reverse sharply on EUR/GBP flows. UK PMI printed at 53.0 versus 52.9 as growth in output and export orders ticked higher but purchase prices fell to their lowest level in five and half years indicating that there is absolutely no inflationary pressures in the system at this time.
UK Manufacturing remained on firmer footing with domestic market remaining the primary driver of growth. The drop in energy costs however had a significant downward impact on prices and unless oil stages a V shaped recovery there is little in the PM report to suggest that BoE needs to move to a more restrictive monetary policy.
Cable saw an initial burst of buying in the aftermath of the release, but the move was quickly reversed as rally in EUR/GBP quickly shaved 60 points off the pair. It stabilized once again ahead of the the key 1.5000 support and remains steady at these levels for the time being.
The rally in the EUR/USD and various crosses was driven by several factors. Once source of support was the persistent buying in EUR/CHF where traders are circulating rumors that the SNB is trying to establish an unofficial floor between 1.0500 and 1.1100. After the fiasco of the past few weeks, the SNB is trying to establish a semblance of order in the market and clearly trying to guide the pair away from parity in order to minimize the deflationary shocks to the Swiss economy caused by the rapid appreciation of the franc.
In addition to support from the Swiss, the euro is also buoyed by slightly less distressing news from Greece. Greek PM Tsipras stated that Greece would repay the IMF loans but noted that the abolishment of Troika is necessary as he continued to negotiate for a change of terms on the debt deal. For their part ECB members stated that the central bank would not become involved in negotiations with Greece for now and would focus on the bond buying program which will start in March.
Although the situation with Greece could still spin out of control with the country essentially defaulting on its sovereign debt, for now the negotiations continue and the currency market is breathing a sigh of relief providing support for the euro.
In North American trade today the focus will be on personal spending and personal income data from US with traders keen to see if the consumer is loosening his purse strings in light of sharp declines in energy costs. The market is actually forecasting a -0.1% contraction versus 0.6% rise the month prior, so any upside surprise could help lift USD/JPY through the 118.00 level as it continues to look for any clues that US economic activity is picking up momentum.