Manufacturing PMI boosts Sterling – 2nd January 2016

Manufacturing PMI boosts Sterling

There are many who bemoan the decline of manufacturing and argue that building and making stuff is more worthwhile than delivering things and messaging services. Investors certainly agreed yesterday as demonstrated by the reaction of Sterling following the UK manufacturing sector purchasing managers’ index. The PMI came in at 52.9, a point higher than analysts had forecast which, along with an increase in mortgage approvals, sent Sterling higher. There was also a story that David Cameron had made progress in his negotiations with the EC which wouldn’t have done any harm to Sterling either.

Britain’s PMI reading was not the class leader: it was beaten by Sweden, Spain and Italy. But the EU and German readings were lower at 52.3 and the two US measures straddled the break even line of 50 at 52.4 and 48.2. In the end Sterling came away as the top performer among the major currencies, more than offsetting Friday’s losses and strengthening by an average of 0.8%.

Earlier this morning the Reserve Bank of Australia cited “heightened volatility” in financial markets and “uncertainty about the global economic outlook” as justification for holding interest rates at 2% for a tenth month. Mindful of its need to keep the Australian Dollar under control the RBA also slipped into its statement an observation that “continued low inflation may provide scope for easier policy” in the future. That phrase cost the Aussie Dollar a cent initially only to regain some of the losses before the UK open for a net loss of 2 cents.

There is little data today so judging by recent form investors will likely continue to sway between risk and safety, chasing yield one minute and safety the next. There are employment figures this morning from Spain, Germany, Italy and Euroland as well as Britain’s construction sector PMI and Swiss retail sales. There is nothing of any consequence from North America.

The Kiwi dollar will face two tests this evening; the fortnightly GDT [milk] price index and the quarterly NZ employment figures. So far this year the GDT index has been negative. A positive number today would help the NZ Dollar.