Daily Market Report 03/04/2013

The pound slid against all 16 of its major counterparts yesterday following data showing that manufacturing output shrank more than anticipated in March stoking concern once again that the UK could be on its way to a recession

Although output improved from the February reading, the March reading did fall shy of what was already a low expected improvement in manufacturing with investors seemingly using the data to book profits following sterling’s recent rally.

The sell-off was a bit of surprise after the British Chambers of Commerce (BCC) stated that the UK will avoid falling back into a recession. The BCC believe that the UK services sector (which accounts for three quarters of the UK economy), has been strong for the first three months of the year and has kept the economy growing. If this is the case, then investors will no doubt look towards Thursday’s Services PMI data before speculating once again whether the UK is heading for a recession or not.

Unemployment in the euro zone jumped to all time high to 12% sapping demand for the euro and with continued contraction in manufacturing output from countries in the euro zone, it would seem that investors are more than willing to sit on the sidelines and seek the safe haven of the US dollar ahead of the ECB interest rate decision and Mario Draghi’s press conference.

The US dollar also attracted inflows following a 3% improvement in factory orders in February. US dollar investors should take note of the ADP payroll figures released today, which is usually a good precursor of the official job figures due for release on Friday.

The only other notable moves in the currency markets were those currencies from a commodity exporting nation. The Australian dollar, Canadian dollar and New Zealand dollar all rose by approximately 1% against the pound as data from the worlds biggest consumer of metals and energy, China, showed that manufacturing output expanded to an 11 month high and thus higher demand for such commodity based currencies.

Whilst today’s itinerary looks is moderately busy, sterling and euro investors may take a back seat ahead of key data from the respective central banks on Thursday. However US dollar investors should take notice of the aforementioned ADP payroll figures, which should give a good gauge for the labour market in the US and thus should good give an indication of the prospect of a reduction in monetary policy in the US.

Key Announcements:

9.30am – GBP – PMI Construction (Mar): Expected to improve to 47.5.

10.00am – EUR – Consumer Price Index (Mar): Expected to reduce to 1.7%.

14.15pm – USD – ADP Employment Change (Mar): Expected to increase to 200,000.

15.00pm – USD – ISM Non-Manufacturing PMI (Mar): Expected to fall to 55.8.