GBP trading higher against both EUR and USD yesterday and eurozone GDP expanding bringing the recession in the eurozone to an end

Tom Tong03/Sep/2013Currency Updates

Verizon agreed to purchase Vodafone Group’s 45% stake in Verizon Wireless, which is expected to be completed in the first quarter of 2014. China’s manufacturing activity picked up speed in August, hitting a 16-month high, allaying fears of a sharp slow down in its economy.

USD

Monday was Labour Day in the US, a federal holiday across all fifty states and data was light on the ground. Despite this President Barack Obama and his aides pressed US lawmakers to approve military force against Syria with many members of congress worried that an attack would only drag America into another Middle Eastern conflict with no end in sight.

This afternoon will prove fruitful in terms of economic report releases starting with ISM Manufacturing PMI for August expected to contract marginally from 55.4 to 54.5 and Construction Spending for July is expected to increase from -0.6% to 0.3%. The housing sector in the second quarter of 2013 has contributed with 40% of GDP growth and with this bout of data being released, markets will establish the progress of the housing market. Other reports printed today; Markit Manufacturing PMI for August is forecasted to increase from 53.7 to 54.0 and ISM Prices Paid for August also expected to increase from 49.0 to 51.6.

EUR

Numbers released from the EU Statistics Office today are forecasted to show that Gross Domestic Product (GDP) in the 17-nation currency bloc expanded by approximately 0.3 per cent during the period from April to June of this year – bringing the longest recession on record to an end.

Elsewhere, strong orders for manufactured goods contributed to figures illustrating that eurozone factory activity rose at the fastest pace in over two years in August as increased demand led to production backlogs for the first time since the middle of 2011. New orders were shown to have come in at the fastest pace since May 2011 as Markit’s Manufacturing Purchasing Managers’ Index (PMI) rose to 51.4 from 50.3 in July – the first month the index had been above the 50-mark that signifies positive growth since February 2012. The positive impact of these numbers was compounded by the fact that they marginally pipped forecasted levels of 51.3 which were released on the 22nd August. Despite the fact that the overall gains are still fairly modest, with companies reporting the strongest gains in two years, there is a tentative market consensus that this upturn will be sustained moving into September.

On the back of both the European and Chinese positive PMI figures, German 10-year government bonds fell the most in more than a week as demand for the safest fixed-income assets diminished. Meanwhile, Austrian, Belgian and Dutch security yields increased with further positive news from the manufacturing sector in Italy and Spain. These numbers acted to reinforce the positive political news from Italy last week as the Italian Prime Minister Enrico Letta’s government passed rulings on an outwardly unpopular property tax – this served to ease rising tensions with former Prime Minister Silvio Berlusconi, leader of the second-biggest party, who had initially opposed the measures.

This morning we see the Unemployment Change figures released from the Spanish Employment Ministry with analysts expecting an upturn from last month’s figures of -64.9k up to approximately -5.2k.

GBP

Sterling started the week slightly up against the EUR and USD following poor US spending data combined with increased fears surrounding Greece’s worsening debt crisis. Yesterday British Manufacturing output figures hit a 3 year high as 32% of companies reported increased output compared to 12% last quarter. In addition to this, yesterday UK Market Manufacturing PMI jumped to 57.2 above consensus and previous of 55.0 and 54.8 respectively and the highest figure since 2011. Output and new orders have grown at the fastest rate for 19 years.

BRC Retail Sales Monitor came in at 1.8% YoY compared to previous of 2.2% and expected 2.4%; displaying changes in real value of retail sales from participating companies. Demand for housing is expected to rise in the UK throughout August, fuelled by Osborne’s Help to Buy scheme. 1.1% more buyers registered with agents last month, tapering the slight downturn of the last 3 years.

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Written by Tom Tong

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