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Sterling fares badly in PMI battle
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- UK manufacturing loses pace
- Euro rates likely to stay at 1% today
Good morning. Fancy a seriously hot car? How about a Ferrari 458? It starts off red and gets even redder when you drive it hard. Owners describe how it can blaze up an Alpine passes or scorch round a racing circuit. One minute it's there, then it's gone in a flash. It goes like a bomb. The car costs £170k and it is an extra two grand for the fire alarm but whatever you do, don't skimp on that particular accessory. Ferrari has made less than 1,250 of the vehicles and 1% have already burnt up the road. The problem lies in the glue that holds them together. (Yes, the glue.) It melts and catches fire. Ferrari has been quick to get a grip of the situation. It is offering owners a limited-edition asbestos suit with the prancing horse logo for just £7,999 plus VAT.
Another egregious example of wrong-pricery is the Japanese yen. The Japanese authorities have left the market in no doubt that they believe it is overvalued. The latest brick comes from Standard Life. Investment manager Euan Monro said in an interview yesterday that 'The yen is criminally expensive... The Bank of Japan will have to come in to intervene in the not-too-distant future. At this level, they are going to be totally destroyed by Korea [in export competitiveness].' It was fighting talk - and entirely logical - but ultimately irrelevant as long as investors insist on stocking up with the currency at the first hint of trouble.
As luck would have it, they were not doing so on Wednesday. Investors got it into their heads that stronger than expected figures for Australian gross domestic product (GDP) and China's purchasing managers' index (PMI) meant there was nothing to worry about any more; if those two are okay, every other economy must also be alright. Sighs of relief and high-fives all round. Equity markets extended their recovery, the commodity currencies moved higher and the safe-haven yen, Swiss franc and US dollar fell back. (Yes, it looks as though the dollar is once again grouped with the safe-haven leaders.)
Sterling, risky currency though it is, did not benefit from the swing in sentiment. It rather blotted its copybook in the manufacturing PMI face-off. The UK index fell three points to 54.3 in August and sent sterling scuttling lower. Arguably it was not the worst performance; the Swiss index fell by five and a half points; its saving grace was that even after that fall it could boast a better level than any of the others at 61.4. Germany's PMI was three points lower as well but still at a relatively elevated 58.2. The Euroland PMI actually managed a microscopic improvement to 55.1 but only after the July figure had been revised downwards by nearly two points. The US index improved by almost a point to 56.3, surprising those who had been expecting a two or more point deterioration (pretty well everyone). Looked at dispassionately, it seems a little ambitious to expect global economic growth to be driven by Australia and China, even if China has now overhauled Japan to become the world's third largest national economy. It was perhaps in recognition of that that the commodity currencies have not extended their gains overnight and the safe-haven trio have made something of a comeback.
That development will also have been helped by news that Australia's trade surplus in July was sharply down in July, falling well short of forecast, and that Swiss GDP expanded by 0.9% in the second quarter of the year, more than twice the 0.4% it achieved in Q1. This morning also brings the revised data for euro zone GDP in Q2. The first estimate was of 1.0% growth and analysts expect today's figure to confirm that. US weekly jobless claims will encourage investors to consider how tomorrow's non-farm payrolls might look. Factory orders do not usually raise pulse rates and pending home sales (between exchange and completion) ought not to but there has been much agitation in recent weeks about the US real estate market. Today's pending sales figure will be dissected more carefully than usual.
There are no UK figures on the card. Neither is there anything from the Bank of England's Monetary Policy Committee, which typically makes its announcements on the Thursday following the first Monday of the month. The European Central Bank will be there though, when it reveals that it is leaving its refinancing rate at 1.0% for a 16th month. At least that is what every economist in the galaxy confidently expects. As usual, the interest - if any - will lie in what ECG President Jean-Claude Trichet has to say in amplification of the rate decision. |
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