PMIs Give Cause For Optimism Ahead of US Data

Chinese Manufacturing in Contraction and Non-Manufacturing Not Picking Up the Slack

The manufacturing sector has been in focus throughout the European session this morning, with PMI data for China, the U.K. and the eurozone driving sentiment at the start of the week. The data from China was a little uninspiring with both the official and Caixin readings remaining in contraction territory and growth in non-manufacturing, which includes services, cooling. Given the need for services to pick up the slack of a slowing manufacturing sector, this may signal a worrying trend and the need for more stimulus in the coming months. Of course, it’s still too early to know if the interest rate and reserve requirement ratio cuts had any impact on the economy, after growth fell below 7% in the last quarter for the first time since the start of 2009.

Stronger Export Demand Gives a Lift to Manufacturing Data

Growth in the eurozone has been quite sluggish for much of this year and the revised PMI data this morning was expected to support this view. While the numbers weren’t great, they did provide more cause for optimism than was expected. It would appear that concerns over Chinese and emerging market demand may be overblown, which is particularly good news for Germany which has strong trade ties with the region. Employment growth remains slow but with output and new orders rising at a faster rate than initially thought, there may be scope for this to pick up in the months ahead. The data is certainly more encouraging than the preliminary releases would have had U.S. believe.

The full eurozone Markit manufacturing PMI report can be found here.


The euro is trading back within its 1.10-1.11 trading range that it traded within prior to the FOMC statement last week. While the stronger PMI data for the euro area could be seen to support the euro, it’s unlikely to encourage the ECB to hold off on providing further monetary stimulus given that price pressures remain to the downside and demand is still quite soft. With this in mind, I don’t see too much upside for this pair and if the stronger external demand can be replicated in the U.S. data today, it may start to look heavy again at which point 1.09 and 1.08 could come back into focus.


New Orders and Higher Output Provide Strong Boost to Large U.K. Manufacturers

The U.K. manufacturing data was also very encouraging having been revised from 51.5 to 55.5 in October. Again, new orders and higher output were largely behind the better number while employment in the sector continued to improve. The data for the start of the final quarter suggests the sector may not be a drag on U.K. growth, as it was back in the third quarter. Of course, this could be a one-off boost but the fact that sales overseas are growing would suggest that the situation is not quite as worrying for manufacturers. If this is to be sustainable though, we need to see small and medium sized businesses benefitting from the upturn, not just the large companies.

The full UK Markit manufacturing PMI report can be found here.

GBPUSD – Cable Finds Resistance Around 1.55 After Stronger Data

Sterling was given a boost after the data this morning but it once again found resistance against the dollar around 1.55. Whether we see this level broken may depend on how the U.S. equivalent performs with a stronger than expected reading here surely feeding in to rate hike expectations ahead of next month’s meeting. If stronger external demand somehow eludes the U.S., then we could see the pound move towards 1.5650 against the dollar, with 1.58 potentially being a very key level above here.


Strong External Demand Trend This Morning Offers Hope Ahead of U.S. PMIs

Given the trend we’ve seen this morning, with export orders being better than first thought, we could see a similar boost to the U.S. manufacturing data today. The official manufacturing number is currently expected to remain at 54 while the ISM manufacturing release is seen falling to 50, meaning no growth in the sector. Given how the data has gone this morning, with foreign demand being better than first thought, we could see some better numbers than we’re currently expecting from the U.S. today. The market is likely to be more sensitive to the U.S. data in the coming weeks ahead of a possible rate hike in December and it will be interesting to see what a manufacturing recovery would do to expectations.

The S&P is expected to open 2 points higher, the Dow 7 points higher and the Nasdaq 6 points higher.

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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