Manufacturing In US And UK Pulls Further Away From Eurozone

After a run of strong data from China, the manufacturing PMIs from the Eurozone yesterday morning also remained on the higher side of expectations. Italian manufacturing PMI hit a 2 year high, while Greece’s measure hit the highest level in over 4 years – it still remains in contraction. France’s measure was also below the 50.0 mark, hitting a 5 month low, while Spain’s moved back into contraction following a strong October. Germany’s number was also strong following good rises in new work and production aspects, although we did see employment slip once again.

Manufacturing in the UK expanded in November at the fastest rate in nearly 3 years as industry managed to shrug off a stronger pound and a resumption of economic worries in the Eurozone, our largest export market. Production and new orders growth have hit close to 19 year highs with the domestic market showing most of the demand. The key metric, jobs growth, also rose for the 7th month consecutively and will further increase belief that the UK recovery can become more broad-based and therefore balanced. All in all, it was a very positive number and given recent surveys and anecdotes from across the country means that the UK should enter 2014 in rude health.

The US’s ISM number was the standout release of the day however, breezing to the highest reading since April 2011. The component parts that we wanted to move higher did, with both the employment and new orders indices increasing healthily, pointing to continued and strong confidence in the manufacturing sector. For those market participants who were looking for an ISM survey to back-up their beliefs that we will see a reduction in the Fed’s stimulus at the Dec 18th meeting, this was a big, fat, red tick. A strong services number on Wednesday will underscore this and will see expectations for Friday’s payrolls number lumped higher from its current 183,000 consensus.

Dollar was boosted after the number with GBPUSD coming away from the 27 month highs it had hit earlier in the day. USDJPY rallied to a 6 month high, too, on expectations that the good data run continues apace over the course of the week.

Overnight the Reserve Bank of Australia have kept policy on hold once again with rates staying for another month at the record low of 2.50%. The central bank reiterated to the market that they believe that the AUD is overvalued at current levels. We have been bearish about the AUD throughout the year, a trade that has definitely paid off. In fact, our trade of the year was to sell the AUD versus the NZD; it hit a 5 year low overnight. We are looking for the AUD to remain weak in the coming year as well as rate differentials and a rebalancing China has an effect.

Today is definitely the quietest day of the week with UK construction PMI and Eurozone PPI to worry about. UK construction hit its highest level since September 2007 last month and expectations are that it will stay in and around these levels in November. We will be hoping for a more balanced approach to construction this month with a hopeful increase in commercial building following months of increases in residential work. The number is due at 09.30.

Eurozone PPI is due at 10.00 and should show a further decrease in input prices following last month’s year-over-year fall of 0.9%.