Strong Eurozone PMI data allays fears of deflation
24/Oct/2014 • Currency Updates•
A mixed day for the Pound ended with Sterling finishing the day where it began against the Dollar, despite poor sales data being announced in the UK.
Concerns voiced by the Bank of England during the MPC minutes on Wednesday regarding the overall health of the UK economy were exacerbated yesterday after weaker than expected Retail Figures were released in the capital. According to the Office of National Statistics (ONS), the volume of Britain’s sales decreased 0.3% MoM in September to register only its third monthly decline of the year and the greatest since May. Overall Retail Sales compared to this time last year were also lower than expected at 2.7%, down from 3.7% in August. This figure showed an even gloomier outlook once fuel had been discounted with Retail Sales ex-Fuel falling by 0.3% MoM to register 3.1% YoY, point three of a percentage point below expectations and 1.3% lower than last month.
The current weakness and fragility within the UK economy looks set to be brought further into spotlight this morning with the National Statistics releasing its Gross Domestic Product figures for Q3. Following on from weak PMI data throughout 2014, the consensus among economists is for a drop in GDP both in terms of YoY and QoQ. Such a decline would inevitably raise further question marks over whether the UK economy is in any kind of suitable position for the BoE to implement an interest rate hike any time in the near future.
The Euro regained some lost ground on greenback having fallen during London and New York trading over the past couple of days, appreciating 0.15% on both the Dollar and Sterling.
Having struggled against its major peers in the last couple of days the Euro experienced a timely boost with the release of the Markit PMIs for the Eurozone in London on Thursday morning. The indices, which measure economic performance within the two major industries of services and manufacturing, both came in equal or better than last month and comfortably above expectations. Manufacturing PMI for October increased by 0.4 on September to 50.7, while Services PMI for the same month remained at 52.4, 0.4 higher than what was predicted. The single currency rose by 0.4% against both Sterling and greenback immediately after the announcement before stabilising as the day progressed as a result of strong US employment figures.
Further positives for the single currency yesterday as the European Commission’s measure of consumer confidence in economic activity, while remaining comfortably below zero, increased in September by 0.3 to -11.1, 0.9 index points up on what was predicted.
Much like USD/GBP the US Dollar Index ended London trading on Thursday where it opened, despite strong unemployment data.
Some more encouraging employment news for the US, as the four week average of US jobless claims dropped to its lowest level in 14 years it was revealed on Thursday. Data released by the Federal Reserve in Chicago showed that average jobless claims fell to 281,000, the lowest level since May 2000 despite data for the week ending 18th October climbing in line with expectations by 17,000 to 283,000.
Such strong data coming out of the world’s largest economy reinforces the idea that the US is currently in the strongest position of all the main world economies, something that we and many economists and analysts have been suggesting for a while. It now looks inevitable that the Federal Reserve will be the first of the major central banks to increase interest rates.
Further data coming out of the US today as the US Census Bureau will be releasing New Home Sales for September at 3:00pm.