UK PMI Beats, But Risk FX Subdued Ahead of CB Meetings

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Market Drivers for August 1, 2013
Chinese PMI surprises to upside but data in AU sinks
EZ Manufacturing PMI remains above 50, UK PMI blows past forecasts
Nikkei 2.47% Europe 0.35%
Oil $105/bbl
Gold $1317/oz.

Europe and Asia:
AUD AiG Performance of Manufacturing Index 42 vs. 49.6
AUD HIA New Home Sales 3.4% vs. 1.6%
EUR ECB Rate Decision
EUR ECB Deposit Facility Rate
EUR Euro-Zone PMI Manufacturing 50.3 vs. 50.1
GBP PMI 54.6 vs. 52.8
GBP BOE Rate Decision
GBP BOE Asset Purchase Target

North America:
USD Initial Jobless Claims 8:30
USD Markit US PMI Fina 8:58
USD Construction Spending 10:00
USD ISM Manufacturing 10:00

The dollar was slightly bid against in early European trade today ahead of two central bank meetings from ECB and BOE, but overall the markets remained quiet as traders awaited the key events of the day.

On the economic front the data out of Asia provided a small boost to risk appetite when the the official Chinese PMI results showed a surprising pick up in activity with index rising to 50.3 from 49.8. The data contrasted sharply with the HSBC PMI figures which fell to 47.7 but some analysts chalked up the difference to seasonal factors. The HSBC readings were taken earlier in the month when the turmoil in Chinese interbank markets was weighing on sentiment. Since then conditions in the interbank market have improved and that may have helped the official numbers.

In Europe the PMI readings were also better than forecast with the final PMI reading coming in at at 50.3 versus 50.1 eyed. The EUR/USD however slid lower for most of the night hitting a low of 1.3226 as traders remained wary ahead of the ECB meeting later today. While the market expects nothing new from Mr. Draghi, traders will be keen to see if he upgrades the economic assessment of the region given the improvement in recent data.

In UK the PMI Manufacturing report was much better than expected rising to 54,6 from 52,8 eyed as the pick up in UK economic recovery is clearly gaining pace. Cable spiked to 1.5200 on the news but stalled at those levels as traders once again remained cautious ahead of the BOE meeting today. Few participants expect any fresh news from the BOE, and if the central bank keeps both rates and QE targets the same, sterling could see a relief rally after several days of selloff going into the event.

In North America today the ISM Manufacturing data is on the docket, but unless it provides a massive surprise its unlikely to have much impact on the market. Given yesterday’s strong ADP, GDP and decent Chicago PMI data the market is primed for moderately positive US manufacturing data as it awaits tomorrow’s NFP results for further confirmation of steady US growth.

The trade today, therefore is likely to trigger off Mr. Draghi’s remarks. The euro has been surprisingly resilient for the past several weeks, but the pair now approaching the key swing highs near the 1.3400 level, further upside may be harder to come by, unless Mr. Draghi becomes considerably more upbeat about the second half of the year.

Boris Schlossberg
Managing Director

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