Market News & Insights
4 November 2014

Australia keeps rates on hold as UK & US PMI’s show growth

EUR/USD 1.2511
GBP/USD 1.6004
GBP/EUR 1.2794 (0.7815)
EUR/CHF 1.2054
GBP/CHF 1.5419
GBP/AUD 1.8354

This morning, Australia’s central bank kept its key interest rate at a record low as the sustained strength of the currency slows an economic transition and hampers hiring. Reserve bank of Australia Governor Glenn Stevens left the overnight cash rate target at 2.5 percent for a 15th month, as expected, and said the currency “remains above most estimates of its fundamental value, particularly given the further declines in key commodity prices.”

As we take a look back at yesterday’s data, UK manufacturing unexpectedly accelerated to the fastest pace in three months in October as buoyant domestic demand offset weakening sales to the embattled euro region. The Purchasing Managers indices climbed to 53.2 from 51.5 in September. A reading above 50 indicates expansion and economists had forecast a decline to 51.4. In comparison a separate report showed European manufacturing barley grew last month as factory output in France and Italy shrank. The two are intertwined as the UK’s recovery will remain heavily dependent on domestic demand and services growth until euro-zone growth picks up again, with inflation low and downside risks to growth still significant, if lower than they were a month ago, the BOE faces little pressure to change monetary policy in the near-term.

The pound was little changed against USD slightly improving to push back above 1.60 this morning. Against the euro though we pushed back above 1.28 for the second time in a few weeks as it tests holding at levels not seen since 2012.

Stateside manufacturing advanced in October at a faster pace than projected, indicating persistent domestic demand is keeping order books full and allowing U.S. factories to withstand slower global markets. The institute for supply management’s factory index increased to 59 in October, matching August as the highest since March 2011, after 56.6 the prior month. Resilient sales of motor vehicles and gains in corporate investment are keeping assembly lines humming even as more manufacturers reported export orders weakened last month. Steady job growth and the cheapest gas prices since 2010 are making it easier for Americans to spend, propelling the economy as U.S. factories remain a standout among their overseas competitors.

Today we are light on the data front with UK construction out at 10:30 and US trade balance out at 2:30. The markets main focus will be later in the week on Thursday & Friday where we have Interest rate announcements from UK & Eurozone and Friday’s US non-farm payroll figures.