Daily Market Report - 02/12/2014

The UK's manufacturing sector grew more than expected last month according to Markit's latest Purchasing Manager’s Index (PMI), as solid domestic demand offset weaker orders from other markets. Markit’s PMI survey came in at a four-month high of 53.5 in November, ahead of the 53 expected and the revised 53.3 in October, offering a much-needed boost to George Osborne ahead of his Autumn Statement.

Manufacturing in the U.S. expanded in November at a faster pace than projected, signalling the world’s largest economy is rising above a global slowdown.  The Institute for Supply Management’s factory index was slightly lower at 58.7 last month, the second-strongest level since April 2011, compared with 59 in October. It exceeded the median forecast, readings greater than 50 indicate growth. 

Orders over the past four months have been the strongest in a decade as growing demand from American consumers makes up for any easing among foreign customers. Continued progress in the jobs market and the plunge in gasoline prices may give Americans an even greater ability to spend in coming months, supporting manufacturing as the year draws to a close. 

One potentially dark cloud in the report was that factories’ clients reported they had about enough goods on hand, suggesting bookings may not pick up much more. The customer inventory index rose to 50, the break-even point between having too much and too little stock. That was its highest reading in three years.

The ECB are set to debate whether cheaper energy is a blessing or a curse. When the European Central Bank president convenes his Governing Council this week, the 24 policy makers will have to judge how the plunge in oil prices will affect inflation expectations in the euro area and what they should do about it. Crude is experiencing biggest and most aggressive drop in three years, after OPEC opted not to reduce a supply glut, puts downward pressure on consumer prices that are already close to stagnating. 

German council member Jens Weidmann signalled how oil is now a focal point in the quantitative-easing debate when he said last week that the drop in energy costs is like a mini stimulus package, suggesting no need for the ECB to expand its current measures. The opposing view, previously argued by Draghi and ECB Chief Economist Peter Praet, is that temporary price shocks can deliver lasting harm to an economy as feeble as the euro area’s. This debate could trigger the implementation of Quantitative easing ( QE)  across the Eurozone. 

The Russian Rouble plunged to a record for a third day, prompting speculation Russia’s central bank intervened to stem losses triggered by tumbling oil prices. The currency weakened as much as 6.6 against the US dollar percent  the largest daily move since 2003.

At 9:30am  thismorning we have Construction PMI data out from the UK. The figures are forecast to fall slightly to 61.2 from 61.4. Should we match or exceed the forecast we would expect further GBP strength against its currency peers. 

Key Announcements:

09:30- GBP: PMI Construction (Nov) expected to be lower at 61 from 61.4
13:30- USD: US Federal Reserve Chair Janet Yellen makes a speech  

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