Market waits on Eurozone inflation after German disappointment

The run of PMIs for the world economy is over for the next month and the overall composite continues to show strong global expansion, albeit it at a slower rate than in November. The overall global PMI fell to 54.0 from 54.2 in December and hints at a global GDP of around 3.0% at its current run rate. This matches most estimates but, as with every average, covers over the cracks of the laggards and diminishes the effort of the leaders.

Once again it was the UK figure that outshone the rest although, following a slip in manufacturing last week, it showed a slight slip in momentum. December’s reading was the lowest since June 2013 and brings to an end 5 consecutive months of readings above the 60.0 figure; the best period of expansion in the services industry since the survey began. Nevertheless, the services industry expanded every single month in 2013 and, alongside the expansion in both manufacturing and construction sectors, should see Q4 GDP running at around 0.9%.
Spain’s composite PMI (manufacturing and services put together) hit the highest level in 77 months in December while Ireland’s number also pulled higher. Elsewhere, Italy and France contracted while Germany missed expectations heavily. France’s number now sits at a 6 month low; the situation is serious and will have a larger effect on ECB policy into 2014 than any relative good news from the periphery.Encouragement can be found within the release from new orders and employment components that both expanded at close to record levels and point to a continued level of service sector expansion. Once again we would be cautious to argue that the majority of the growth is from business-to-business companies and that those companies that rely on the UK consumer will remain wary moving into 2014 as a lack of real wage increases hurt the man in the street’s pockets. GBP has also remained under pressure on expectations that the Bank of England may put out a dovish statement with Thursday’s inevitable policy hold. As we spoke of yesterday, we would only expect a move to happen in concert with an inflation report.

The euro remained under pressure following another miss on inflation, this time in Germany. In a basket of harmonised prices over the entire EU, German CPI rose by 1.2% over the past year against an estimate of 1.4% and 0.5% on the month against a 0.7% expectation. The battle against disinflation and eventual deflation will typify Eurozone monetary policy through the year. The overall CPI for the Eurozone is due at 10am GMT.

The Canadian dollar fell yesterday after Finance Minister Jim Flaherty hinted at further help for exporters via a lower CAD after a meeting with Bank of Canada Stephen Poloz. “The governor was with us recently with the provincial ministers and he indicated there might be some softening in the dollar,” Flaherty said in an interview.

Apart from that inflation figure from the Eurozone, we have little on the data docket today. French consumer confidence has just been released at 85 vs 84 expected. While slightly stronger, it remains very close to the record lows of 80.0. German unemployment is also due this morning with the market looking for a slight decrease (1k) following last month’s shock 10,000 increase.

Indicative Rates

Sell

Buy

GBPEUR 1.2026 1.2046
GBPUSD 1.6381 1.6402
EURUSD 1.3609 1.3630
GBPJPY 170.91 171.14
GBPAUD 1.8347 1.8370
GBPNZD 1.9797 1.9818
GBPCAD 1.7479 1.7502
NZDUSD 0.8268 0.8283
GBPZAR 17.43 17.48
USDZAR 10.640 10.655
GBPPLN 5.0168 5.0397
EURJPY 141.96 142.15
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Please note these rates are “interbank” rates i.e. they indicate where the market is currently trading and are not indicative of the rates offered by World First. Rates are dependent on amount transacted. It is important to remember that foreign exchange rates fluctuate all the time.

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