Decreasing manufacturing and services momentum in Europe was yesterday’s main story although this revelation is not exactly ground breaking. PMIs from the manufacturing and services industries of France, Germany and the wider Eurozone continued to show a level of torpor that will solidify expectations that the European Central Bank is not done easing monetary policy yet. The divergence between the European and US economies was highlighted beautifully by the US’s manufacturing PMI preliminary figure as it stuck steadfast to a 52-month high with the job creation component touching the best level since the beginning of 2012. The services measure is due tomorrow afternoon.
This week’s US data calendar is dominated by speeches from FOMC members after a few weeks of almost silence from the Governors of the regional Federal Reserves. St Louis Fed Chair Bullard yesterday said that the Central bank may need to cut away language suggesting that rates will stay low as tapering brings the quantitative easing plans of the Fed to a close next month. Members Dudley, Bullard, Mester, Evans, Lockhart and Powell are due to speak publically this week as well as Members Kocherlakota and George twice respectively. As we highlighted months ago, we can have months and months of strong US data but if the Federal Reserve isn’t talking about it then then those months are worthless.
The Swiss National Bank President has fired a shot across the bows of those who believe that the SNB will flinch on its policy of weakening the Swiss franc. President Thomas Jordan said the Bank has the ability to supplement its cap “immediately” should it feel it threatened. EUR/CHF remains only 70 pips from the 1.20 floor and it will only be kept there via additional policy measures. We think the SNB will cut rates into negative territory if recent deflationary pressures are sustained. There is no reason to suggest that they won’t given import price shifts from the Eurozone.
Geopolitical risk is back on the radar this morning following the US’s bombing of ISIL positions in Syria. The Pentagon made sure in a press conference to emphasise that this was not a one-time event and that continual impacts will be made to protect Western interests. News also reached us yesterday of a coup in Yemen with Shiite rebels taking the capital Sana’a. News from Ukraine also kept US treasuries in focus with yields coming lower on havening efforts.
German IFO this morning is the main event of the day. We expect that the levels of business confidence within the nation will continue their declines. The overall index has been slipping since April with the expectations component expected to fall to the lowest level since January of last year. A lot is read into the IFO announcement with little reason as to why; it mirrors the ZEW index well I guess.
Away from that the data calendar is once again very quiet. Markets have their signposts for each currency and are simply happy enough to wait for them. For the USD it is next week’s jobs report. In the Eurozone, the preliminary CPI numbers and the details of the European Central Bank’s ABS plan. In the UK it is wage data. Until those are upon us we expect trading to remain quiet.
