Worldwide manufacturing data overshadows eurozone malaise

Tom Tong03/Apr/2012Currency Updates

GBP

Sterling was yesterday boosted by UK manufacturing data. UK PMI data managed to surprise to the upside, rising to 52.1 in March from 51.6 in February. This has been in spite of the woes of the Eurozone, a major trading partner. This may suggest that the UK is managing to slightly decouple itself from the eurozone, similarly to what the US has done. However, investors still remain wary of the drags of the Eurozone. Sterling gained a further 0.1% against the dollar and 0.4% higher against the Euro. Sterling ended the session hovering close to 13-month highs on a trade-weighted basis. CFTC data also showed that Sterling short positions improved for the second consecutive week to levels not seen since last August, underlining optimism for the currency. All eyes will now be on Thursday’s monetary policy decision of the Bank of England, as well as construction PMI data out of the UK.

USD

Risk sentiment worldwide was yesterday re-energised by promising US manufacturing data. The US ISM manufacturing index managed to rise to 53.4 in March, compared to 52.4 in February and an expectation of 53.0. The employment component of the index also listed its best figures since June; a promising sign for the upcoming non-farm payrolls report on Friday. Risk sentiment was further boosted by a large upside surprise in China’s PMI data, which showed a rise to 53.1, beating expectations of a 50.8 reading. Chinese manufacturing is a strong indicator for factory activity in the world’s largest manufacturing industry. Worldwide equities benefited by the positive manufacturing data being released worldwide, as the S&P500 jumped to a post-crisis high.

The USD lost out on some of its safe-haven status to the yen, and investors saw its haven qualities outweighed poor first-quarter Japanese business confidence data. The yen rose 1.2% against USD and 1.4% against the euro.

Tonight will see the FOMC minutes from last months meeting released, with investors keeping an eye on what views are on possible further asset purchasing by the Fed. Otherwise, investors worldwide will be keeping an eye on Friday’s non-farm payroll report which as seen as the crucial monthly indicator for the US economy.

EUR

Yesterday was more of a sobering state of affairs for the eurozone, in contrast to the positive signs coming out of the UK and US. Eurozone unemployment figures reached a new euro-era high of 10.8%. Furthermore, manufacturing business conditions slumped in all four major eurozone economies in March, heightening fears of recession across the currency union.
The sector has deteriorated in every month since July 2011, with a fall in new orders hitting March’s PMI.

The index fell to 47.7, down from 49 in February and firmly below the “no change” mark of 50.. German business conditions fell with a PMI of 48.4, down from the slight growth at 50.2 recorded in February, while France also saw a deterioration with a PMI of 46.7.

These represent further signs that the manufacturing malaise already exhibited at the periphery of the currency bloc was spreading to the core.

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Written by Tom Tong

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