Yesterday saw a strong start from the UK, with the manufacturing PMI coming in just ahead of expectations and painting an improving picture of UK growth. This was a short-lived shot in the arm for sterling as the rate against the US dollar promptly dropped by a cent on further concerns around the election. The sharp moves are likely to continue over the weekend given low liquidity.
Where sterling will be on Monday will depend on couple of things – construction PMI data out this morning is expected to show an increase to 60.1 from 59.5, which you would expect to be a positive message for the conservative’s message on economic stability. The other side of the coin on the political front is the live debate tonight which Nigel Farage or Ed Miliband are expected to ‘win’, and may lead to shifts in polling and more volatility for sterling, and that’s before we talk payrolls!
European picture – good or bad?
It’s pretty hard to work out what to make of Europe at the moment. The quantitative easing is certainly having the desired impact with the German economy arguably benefiting the most. The manufacturing PMIs from Europe were all solidly at or above expectations, and as a group increased to 52.2 against expectations of 51.9. The improving data and liquidity provided by the central bank has prompted (NYSE:Goldman Sachs) to describe the European economy as being in a ‘sweet spot’ for growth, which you would struggle to argue against given the extraordinary stimulus being provided.
The negative side of the equation of Greece will no doubt flare up again before we reach a long term solution, but for the time being the noises are positive with talk of a potential deal next week from the Greek finance minister. The markets haven’t taken this on board with the euro continuing to look soft against the US dollar and sterling, even with an increase in the emergency funding limit for Greek banks.
US employment the focus as data continues to disappoint
The picture of the US economy continues to look less rosy than the markets have been expecting. Yesterday again saw the data disappoint, with manufacturing figures showing slower than expected growth in March (ISM 51.5 vs 52.5). We are looking ahead to the Non-Farm payrolls for Friday, which may not reach the 245,000 expected after yesterday’s private ADP measure missed expectations at 195,000 (225,000 expected).
There will be very little liquidity tomorrow once the payrolls figure is released, so we could see exaggerated moves. The only US data of note today is Initial Jobless Claims with expectations of a continuation from last month around 285,000 – any increase will put further pressure on the dollar ahead of tomorrow’s data. The speculation after these numbers will revert to timing of the rate rise by the Fed, with June looking less likely.