Daily Market Report 02/07/2013

The US dollar finished broadly lower yesterday following mixed data from its manufacturing sector and concerns over its labour market. GBPUSD gained 0.20% and EURUSD gained 0.37% as a result.

Markit manufacturing came in at 51.9 for June falling from 52.3 in May; the slowest pace of expansion in nine months. PMI manufacturing rose from 49 in May to 50.9 in June, however, the report also showed that the employment index part of the survey fell from 50.1 to 48.7, indicating a contraction in hiring in the manufacturing sector.

Given that the Fed are looking towards an improvement in the labour market before deciding to taper its quantitative easing programme, yesterdays data seemed to unnerve investors especially ahead of this Friday’s all important non-farm payroll figures.

The euro drew support as Markit manufacturing PMI came in better than expected from France, Spain and the euro zone as a collective. The only sour note came from Germany as manufacturing PMI came in at 48.6, marginally missing expectations at 48.7.

The rate of inflation also rose in line with expectations to 1.6% potentially reducing the chances of a rate cut in this Thursday’s ECB meeting. Euro zone rate of unemployment rose to 12.1% in June but didn’t worsen to the 12.3% that the market was anticipating; possibly signalling a change of fortune for the euro zone job market.
Data from Markit showed that manufacturing PMI expanded further to 52.5, beating forecasts of an expansion to 51.5. Signs that the economy is recovering could be seen further as mortgage approvals increased from 54,354 to 58,242 in May.

Whilst signs of an economic recovery can be seen from fundamental data, all eyes will be on Mark Carney, the newly appointed Bank of England governor, and whether he believes the improving fundamentals are sufficient enough for the Bank of England to refrain from adding further stimulus.

Currencies of commodity exporting countries fared better yesterday following the Bank of Japan’s Tankan survey revealing that manufacturing optimism was at a two year high, sapping demand for safe havens and causing investors to seek higher yielding assets.

The Reserve Bank of Australia held interest rates at 2.75% overnight but signalled once again there is a strong possibility that the Australian dollar will depreciate over time to help rebalance exports to aid economic growth.
Looking ahead, markets will focus their attention to the respective central bank meetings from the UK and the euro zone as well as data from the job market from the US on Friday.

Data this morning has shown that although PMI construction expanded in June to 51 from 50.8 in May, the figure did marginally miss out on expectations. As a result there has been a muted reaction on the pound so far.

Key Announcements:

10.00am – EUR – Producer Price Index (YoY) (May): Expected to improve to 0%.

15.00pm – USD – Factory Orders (MoM) (May): Expected to improve to 2%.