Daily Market Report 02/09/15

A two-year spell of jobs growth across British factories came to an end last month as manufacturing activity expanded at a slower pace, suggesting the sector is unlikely to boost economic growth during this quarter. The UK Manufacturing Purchasing Managers' Index (PMI) fell in August to 51.5 from 51.9 in July, confounding expectations for a rise to 52.0.

While still holding above the 50 threshold for growth, the survey underlined Britain's reliance on its services sector and big-spending consumers to drive the economy. There were mixed signals for the manufacturing outlook. New orders came in at the fastest pace in five months but export orders continued to contract, while backlogs of work shrank at the fastest pace since March 2013. And the PMI's jobs index fell below 50 for the first time since April 2013, adding to recent signs Britain's labour market has cooled off after a two-year strong run.

Markit said prices paid by manufacturers for raw goods and energy plunged at the fastest pace since January, suggesting little sign of inflation pressure in the pipeline from British industry. Oil prices fell near a 6-1/2-year low last week, entrenching expectations of low inflation in advanced economies and pushing back market expectations for the first Bank of England interest rate hike from the Bank of England deep into next year..

Unemployment in the Eurozone fell to its lowest rate in July for more than three years. European Union statistics agency Eurostat said the jobless rate in the currency union fell to 10.9% in July from 11.1% the month before. The fall was helped by a sharp fall in unemployment in Italy, where the jobless total fell by 143,000. It is the first time the unemployment rate in the Eurozone has been below 11% since February 2012. 

A survey released earlier on Tuesday suggested that growth in the Eurozone's manufacturing sector had eased slightly in August, despite factories barely raising prices. The closely-watched Markit Eurozone manufacturing purchasing managers' index (PMI) was 52.3 last month, below a preliminary reading that suggested it had held steady at July's reading of 52.4. However, it has remained above the 50 mark that separates growth from contraction for more than two years. 

With inflation still far from the ECB's target rate of just below 2%, and looking likely to stay there for the foreseeable future, speculation is growing the bank will have to extend its stimulus programme beyond the planned completion in September 2016.

Key Announcements

09:30 - GBP:  Construction PMI – Expected to rise to 57.6 from 57.1.
13:15 - USD:   ADP Non-Farm Employment Change Expected to rise to 204K From 185K.