GBP dropped today after Industrial Production and Merchandise Trade figures were released today.
Actual Expected Previous
Merchandise Trade: Level -8.2 -8.9 -8.9
Industrial Production: IP-M/M -1.2 0.1 1.1
Industrial Production: IP-Y/Y -2.9 -1.1 -1.7
Industrial Production: Mfg Output-M/M -1.5 0.0 1.6
Industrial Production: Mfg Output-Y/Y -3.0 -1.0 -1.5
The worse than expected figures led to the drop in value across all currency pairs, this following last Fridays release of positive figures in the US has been bad news for anyone long on the Pound, a drop from 1.5035 to 1.4846 since late last week.
Today’s Ivey PMI figures from Canada saw the CAD lose significantly against the USD and other currency pairings. The Ivey Purchasing Managers Index measures month to month changes in dollars of purchases as indicated by a panel of purchasing managers from across Canada.
A headline value above 50 indicates an increase in purchases from the previous month and a value below 50 indicates a decrease. Although the figure today was above 50 at 51.6, it showed a significant drop from the previous month figure of 54.8, a drop of nearly 6% month on month.
Markets reacted, USDCAD had been trading at around 1.0288 before the figures were published, and this jumped to a high of 1.0336 following the announcement.
This along with Bank of Canada Governor, Mark Carney’s statement that his policy interest rate is likely to remain unchanged following a slowdown in inflation. Their benchmark of 1% on overnight loans between banks will remain unchanged.
Canada, the world’s 11th largest economy, reported slower growth and job losses since the last announcement last January. The 0.5% inflation rate seen in January remains well below Carney’s 2% target, while employment fell for the first month in six.
UK figures out better than expected. ILO Unemployment out at 7.7% vs. 7.8% expected and the Claimant Cout rate showed a drop to -12100 from -3000 against an expectation of +1000. Cable currently rising decently and testing resistance at the 200 day MA, currently at 1.5879. Next level of resistance seen at 1.5910 and then 1.5970. Support at 1.5828.
Positive surprise in E-Z data as the Industrial Production came better than expectations. The monthly figure came out at 0.6% vs. 0.0% expected. June data at -0.6%. The yearly figure showed a decrease of 2.3% vs. a decrease of 3.3% expected. June figure at -2.1%.
Overall the data shows that demand is picking up, but output is still not at same levels as earlier. Production of durable consumer goods such as televisions, washing machines and cars fell nearly 10 percent in July compared to the year-ago period.
The EUR did not really react to the figures. EUR/USD trading around 1.2880, EUR/GBP just below 0.80 and EUR/JPY around 100.25.
Mixed figures from the UK economy today, but overall there should be hope for the future. The ILO Unemployment rate came out at 8.1% vs. 8.0% expected for July, but the August Claimant Count Rate came out at 2-yr lows, at -15.0k vs. 0.0k expected. July figure was revised down to -13.6k from -5.9k initially. As seen from the graph below, the Claimant Count Rate is clearly a leading indicator for the ILO Unemployment rate.
The claimant count is measured by the JobCentre Plus administrative system. It measures the number of people claiming unemployment-related benefits. Since October 1996 this has been the number of people claiming Jobseeker’s Allowance. It does not include people claiming other benefits.
Initial market reaction was a slight drop in the Pound, but it has recovered and is now at new day highs around 1.6130. Near term resistance at 1.6145.
ISM data just released here at 14:00 GMT revealed an ISM figure for the manufacturing sector at 49.6 vs. 50.0 expected. Prior at 49.8. ISM Prices Paid at 54.0 vs. 46.0 expected. July figure at 39.5. This means that we are seeing a contraction in the growth of the manufacturing sector while inflation is increasing. In the ISM indices, a figure above indicates expansion, while a figure below 50 indicates contraction.
Also the US July Construction Spending disappointed at -0.9% vs. +0.4% expected.
Initial market reaction has been a depreciation of the US Dollar and stocks have spiked higher briefly, but now turned around and facing risk-off. We see potential further downside in EUR/USD below 1.2560, giving scope for a test of 1.2520-area and for the S&P below1397, for an initial test of 1390
Producer Prices in the Euro area rose in the month of July more than expected at 0.4% vs. the 0.2% forecast. The yearly figure came out at 1.8% vs. 1.6% expected. Rising energy prices was the influencing factor behind the increase, which is not satisfactory to the ECB, who wishes to keep inflation anchored while getting growth back on a solid track.
The Purchasing Managers Index for the construction sector in the UK fell unexpectedly to 49.0 vs. 50.0 expected. July figure at 50.9. As the figure is below 50, this means that the sector is in contraction. This raises questions about the strength of the UK economy and also if the the Sterling is overvalued against other G7-currencies. In the PMI data, especially the new orders showed a big drop, a there is little evidence supporting an imminent rebound in output levels.
GBP/USD fell on the news after touching the 1.59-figure, currently at 1.5890. Resistance at 1.5912.
Swiss economy contracted in the second quarter of 2012. The data revealed a drop of 0.1% against expectations of a growth of 0.2%. Data from first quarter growth was revised down to 0.5% from 0.7%. The SNB yesterday reiterated their view that the floor in EUR/CHF will should be kept at 1.20, but with the loss in momentum of the Swiss economy, also revealed by the PMI, it seems that the SNB has no other option than to stick to their policy and attempt to intervene when necessary. Growth in private consumption, considered the backbone of the economy, slowed in the quarter to 0.3 percent compared with the first three months, from 0.9 percent in the previous quarter.
The CHF fell slightly against peers, but no real reaction. Next meeting in the SNB is on 13 September.
Markets are trading in narrow ranges this morning as the US markets are closed Labor Day and investors are waiting for the ECB on Thursday.
EUR/USD has so far traded in a 26-pip range, but we could see a move in response to the Banking Union debate taking place later today in Brussels (15:45 GMT.) Short-term, the descending triangle formation, if confirmed, could give scope for a test of short term wave lows around the 1.25-figure.
EU stock markets are generally in positive (except Spain’s IBEX, following negative news from Andalusia) and peripheral fixed income yields are coming off a tad. On the macro-side, Euro area manufacturing PMIs disappointed market expectations, but we have not seen a real negative reaction in the EUR.
Swiss PMI data also disappointed the market, revealing a contraction for the 4th month in a row. August data showed a drop to 46.7 vs. 49.4 expected (against 48.6 in July.) This should give some firepower for the SNB to keep the Franc offered. Chairman of the SNB, Jordan, reiterated that the 1.20-floor in EUR/CHF will be monitored closely.
The SEK has been the weakest performer today, dropping more than one per cent against the EUR and the USD, following recent SEK strength. This has led to the market pricing in a rate cut with a 25% probability with a full rate cut priced in by October.