While this week’s biggest events come towards the end of the week – ECB monetary policy decision, US jobs report and OPEC meeting – there are a number of economic releases due today that will be of interest, starting this morning with the final eurozone manufacturing PMI readings.
The manufacturing sector is facing a challenging period for the eurozone as weakness in the euro fails to stimulate strong external demand, particularly from emerging markets which are experiencing a slowdown. The sector is expected to have expanded modestly in November, but as is the case overall, this is not enough given the sharp economic contraction in recent years. The data therefore supports the need for more stimulus from the ECB, although this alone is unlikely to spark the kind of recovery the region desperately needs.
Unemployment is expected to have remained at 10.8% in October which just highlights the size of the task at hand for eurozone leaders. While this is a big improvement on the 12.1% peak back in 2013, there is still a long way to go and with all this slack in the labour market, the ECBs job of returning inflation to 2% looks all the more difficult. With growth next year also likely to be sluggish once again, more accommodation may well be necessary.
We’ll hear from Bank of England Governor Mark Carney this morning when he holds a press conference on the Financial Stability Report and bank stress test results. While the topic of monetary policy is not due to be discussed, it would not be unheard of for it to come up and therefore his comments are worth monitoring. While Carney has successfully managed expectations around the first interest rate hike, it’s still not clear when the central bank would like to considering the raising cycle so any comments will be scrutinised for clues. The pound has weakened quite considerably against the dollar in the second half of the year from around 1.60 to 1.50 yesterday which I’m sure will please the BoE. That said, it has fallen back to around 0.70 against the euro, which will be a concern given that the eurozone is the UK’s largest trading partner.
This has been reflected in the weakness in UK manufacturing which has suffered considerably as a result of the stronger pound. Barring last month’s surprising jump to 55.5, which is expected to be revised down to 54 today, the manufacturing PMI has been weak for most of this year, barely managing to stay in growth territory. This may explain the change of heart from the BoE, with more stimulus from the ECB likely to make life even more challenging for UK manufacturers.