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Cable Hit Hard as UK Manufacturing Slows

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Top Stories

  • Australian Q1 GDP weaker but Treasurer Swan says rebound is coming
  • UK PMI Manufacturing drops to 52.1 from 54.2 eyed as domestic demand falls
  • Nikkei up 0.27% Europe up 0.18%
  • Oil at $103.29/bbl
  • Gold at $1533/oz.

Overnight Eco

  • AUD Q1 GDP -1.2% vs. -1.0% eyed
  • AUD AIG Manufacturing 47.7 vs. 48.4
  • EUR Final PMI 54.6 vs. 54.8
  • GBP Manufacturing PMI 52.1 vs. 54.2
  • GBP Net Lending to Individuals 1.2B vs. 1.1B
  • GBP Mortgage Approvals 45K vs. 48K

Event Risk on Tap

  • USD ADP NFP Change expected at 177K
  • USD ISM Manufacturing PMI expected at 58.1
  • USD Construction Spending m/m expected at 0.4%

Price Action

  • USD/JPY mild risk flows from Aussie crosses take it to 81.50
  • AUD/USD rallies to 1.0750 despite weak GDP as hopes that Q2 rebounds
  • GBP/USD drops to 1.6400 after PMI falls badly
  • EUR/USD well supported above 1.4400 as Germans suggest 70 Billion bailout package to Greece

@import url(/css/cuteeditor.css); GBP/USD was slammed in early morning London trade today after UK PMI Manufacturing data missed badly printing at 52.1 versus 54.2 eyed. The PMI Manufacturing reading dropped to a 20 month low as domestic demand and export growth both slowed. Part of the weakness in April was attributed to UK public holidays which shut down economic activity in the country for several days in order to celebrate the Royal wedding.

Nevertheless, despite the unusual circumstances in April the evidence is clear that UK manufacturing growth has now slowed to a crawl and is quickly approaching contraction as output balance slipped from 56.3 to 49.9. Additionally, new orders fell below the 50 boom/bust line to 48.3 from 50.8 the month prior.

Overall the UK data suggests that domestic demand remains tepid at best, a dynamic that was further confirmed by the weaker than expected mortgage approvals data which slipped to 45K from 48K in March. Today's news will undoubtedly keep BOE stationary for the time being dashing any hopes of a near term rate hike in Q3 of this year. This market view will intensify if Friday's UK PMI Services report , which is a far more important gauge of UK economy, also disappoints in which case cable could retest the 1.6000 figure as specs abandon the trade.

Meanwhile in Australia economic news was similarly disappointing but the reaction in Aussie was considerably more positive. Australian economy contracted at the sharpest rate a decade with Q1 GDP coming in at -1.2% versus -1.0% eyed as a result of natural disasters that struck the country at the start of this year. Q4 growth was revised slightly upward to 0.8% from 0.7% initially reported. On a year over year basis growth slowed to 1.0% from 2.7% the period prior.

Massive flooding in Queensland, along with an attack from Cyclone Yasi severely disrupted coal and iron ore production in Q1. Net exports shaved nearly 2.4% from growth as a result of the natural disasters. However Australian Treasurer Wayne Swan noted that the weak Q1 results will likely be, "followed by a strong rebound in the June quarter as the economic impacts of the disasters ease and reconstruction picks up." Mr. Swan's comments helped to fuel a rally in the Aussie despite the weaker than forecast results as currency markets bet that the RBA will look past the Q1 readings and will continue to tighten its monetary policy in order to keep price pressures under control.

With weak economic data from Asia and Europe, evidence continues to build that global growth is beginning to slow. Today in North American session the market will get a glimpse at the ADP and the ISM Manufacturing numbers, both of which could provide a strong clue about the NFP numbers this Friday. The ISM Manufacturing report could prove weaker than expected given the recent misses in regional data readings. However it is the ADP numbers that could affect trade the most today. If ADP shows a reading of 150K or less the news could trigger a bigger wave of risk liquidation as the day proceeds putting further pressure on cable and unwinding some of the recent gains in the EUR/USD.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:15 8:15 ADP NFP 177K 179K
USD 14:00 10:00 ISM Manufacturing PMI 58.1 179K
USD 14:00 10:00 Capital Spending 0.4% 1.4%

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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