Daily Brief

Daily Brief

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Confidence shaken

Selling the history

Friday's provisional purchasing managers' index readings gave sterling another of those buy-the-rumour-sell-the-fact moments. Although the numbers were better than forecast, investors had evidently anticipated that to be the case. Buying ahead of the data and profit-taking after the announcement left the pound mostly lower on the day.

The provisional manufacturing PMI at 49.8 came within an inch of breakeven and was more than two points higher on the month. At 52.9, the services PMI was up by nearly three points and comfortably within the growth zone. Markit described it as "a decisive change of direction" that left the composite reading at 52.4, its highest level in more than 18 months.

Sterling did briefly pop higher when the numbers came out but the profit-takers were onto it in a flash. Within half an hour, Cable was down by more than half a cent from its pre-announcement level. On the day it is an average of 0.2% lower having lost two fifths of a euro cent and two thirds of a US cent. It is an average of 1% higher on the week, beaten only by the Japanese yen.

 

Anti-risk virus

The yen's leading position was a function of widespread nervousness about the Coronavirus outbreak in China. By the same logic investors stayed away from the antipodean dollars and the Norwegian krone. The krone suffered most, hurt by lower oil prices.

The tragic virus is also having an impact on financial markets, affecting both the local and global economy. China has already been hit by a sharp drop in new year holiday travel and analysts foresee a big dent in first quarter growth. US equities endured a poor Friday too, and extended their decline in the Far East this morning. The DJ30 index is 2% off Friday afternoon's highs.

Other than the UK numbers, Friday's economic data did not add much to the debate. Germany's manufacturing PMI was predictably soft at 45.2 but at least it was more than half a point above forecast and the reading for services was a respectable 54.2, a five-month high. For the euro zone as a whole, the composite reading was 50.9 and the equivalent figure from the States was 53.1, a ten-month high.

 

Australia Day

With Australia celebrating Australia Day and China doing its best to celebrate the new year it was a quiet start to the day. Looking at the agenda, the chance are that it will not get appreciably busier either.

The only UK statistic is BBA mortgage approvals, a sub-set of the overall figure put out by the Bank of England. A small increase is expected for December.

Euroland's only contribution is German business confidence, as assessed by IFO. The US Census Bureau reports on new home sales and the Dallas Federal Reserve publishes its manufacturing index for January. NAB's Australian business confidence survey comes out tonight.

GBP: UK PMIs not good enough

GBP: UK PMIs not good enough

JPY: Risk-off mood pumps demand

JPY: Risk-off mood pumps demand

NOK: Hardest-hit by oil price slide

NOK: Hardest-hit by oil price slide

CNY: Unhurt by coronavirus

CNY: Unhurt by coronavirus

AUD: Jobs numbers beat forecast

AUD: Jobs numbers beat forecast

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