Growth Fears Take Hold

The euro loses ground after a gloomy set of PMI figures as fears over a global slowdown loom.

Previous Day's Market Highlights

The euro was the major mover on Friday, losing 0.5% after several below forecast data releases. This begun with French PMI figures for November showing contraction in the manufacturing and services industries, giving investors an early look at the impact of the recent “gilets jaunes” protests on the economy. This followed through into the eurozone PMI figures which, although still remaining in expansionary territory, missed market expectations with both manufacturing and services PMI indices reading 51.4. This was not the end of the gloom however, with the accompanying report showing that eurozone business activity was at a 4 year low and job creation had slipped to a 2 year low, increasing investors’ fears of an economic slowdown in 2019.
 
Elsewhere, US retail sales were in line with expectations and showed an increase of 0.2% on a month-over-month basis which gave market participants some confidence in the US consumer sector heading into the festive period. The dollar index, which tracks the dollar’s performance against a basket of peers, was trading near a 19 month high after the release with this strength also being aided by the greenback’s status as a safe-haven causing the dollar to come under significant demand after poor economic data elsewhere. The pound was little changed on the day as PM May came away from the EU summit empty handed and with the EU remaining unwilling to renegotiate the Irish backstop.
 
Away from FX, other markets experienced volatile trading sessions. Oil prices fell by more than one percent as weak economic data from China pointed to lower demand going forwards from the world’s biggest oil importing nation. US and European equity markets also fell, largely due to global growth fears adding to investors’ fears around a US-China trade war. Indices on both sides of the pond lost between 0.6% and 0.85%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1120 1.1349 1.1004 3.04%
GBP/USD 1.2587 1.2927 1.2491 3.37%
EUR/USD 1.1381 1.1472 1.1267 1.79%
GBP/AUD 1.7538 1.7818 1.7208 3.42%
GBP/NZD 1.8496 1.8985 1.8183 4.22%
GBP/CAD 1.6842 1.7175 1.6722 2.64%

Today's Market Highlights

The economic calendar is quiet today, with the only release of note being the latest eurozone CPI figures. Market participants are expecting year-on-year growth of 2% and 1% for the headline and core figures respectively, meaning both figures are expected to remain unchanged from the earlier flash estimates. Despite this, the release will come under close scrutiny with investors trying to gauge the health of the eurozone economy, especially after poor economic figures last week and a downbeat assessment from ECB President Draghi.
 
Elsewhere, other data is of lower significance but does include manufacturing index figures from New York and the monthly economic report from the Bundesbank (Germany’s central bank) which could cause volatility in the euro, especially if the viewpoint differs significantly from the ECB. Focus for sterling traders will once again remain with political news flow before Parliament enters recess later this week.
 
The highlight for the week ahead will undoubtedly be the last FOMC meeting of 2018 on Wednesday, with the Fed widely expected to raise interest rates by 25bps – their fourth hike this year. As this news is already priced in, the market will be focusing on the latest set of economic projections and the interest rate dot plot to gauge the extent of monetary policy tightening in 2019 which currently remains unclear. The Bank of England and Bank of Japan also meet though neither are expected to make any changes to policy. Other points to note include inflation figures from the UK and Q3 GDP releases from major economies including the UK, US, Canada and New Zealand.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00am EUR CPI (y/y) 2.0% 2.0%
10:00am EUR Core CPI (y/y) 1.0% 1.0%
1:30pm USD Empire State Manufacturing Index 21.5 23.3