Last Week’s UK Economic News Review
Sterling was off sharply against both the U.S. Dollar and the Euro in the first week of 2016. The decline in the currency was in part due to risk appetite favoring the Greenback and Euro over Sterling. Also, the latest Markit/CIPS Purchasing Managers Indexes showed mixed results, while the United States reported a strong Non-Farm Payrolls number last Friday.
The week began with the UK reporting that Manufacturing PMI had declined to 51.9 in December, down from 52.5 in November and 55.5 in October. Markit Senior Economist Rob Dobson stated that, “This suggests that industry will make, at best, only a marginal positive contribution to broader economic growth in the final quarter of the year”.
UK Construction PMI released on Tuesday showed better results with a reading of 57.8 compared to an expectation of 56.1, while Services PMI came out on Wednesday at 55.5, in line with expectations. Other UK releases last week were the Trade Balance, which showed a deficit of -10.6B in line with the consensus, and Net Lending to Individuals, which increased +5.3B m/m compared to the +4.9B expected result.
United States’ releases were also mixed last week. The week began with ISM Manufacturing PMI printing at 48.2 versus the 49.1 expected result. On Wednesday, the FOMC Meeting Minutes showed that its members were generally on board with the +25 bps rate hike at the December meeting, and ADP Non-Farm Employment Change beat expectations at +257K versus the +193K expected result. Also out on Wednesday was the Trade Balance, which showed a deficit of -42.4B versus the -44.0B number expected. The highlight for the week was Non-Farm Payrolls, which showed 292K jobs were added in December compared to an expectation of only 203K, and with the previous number revised significantly upwards from +211K to +252K
The Eurozone’s economic calendar was light last week. The data which had the most impact for the Euro were CPI numbers, with German Preliminary CPI showing a decline of -0.1% m/m versus the +0.2% anticipated result. Tuesday saw the release of the Eurozone’s CPI Flash Estimate, which showed an increase of only +0.2% y/y versus the +0.4% expected, and the Eurozone Core CPI Flash Estimate came in at +0.9% compared to an expectation of +1.0%.
Overall, GBP/USD began the week at 1.4733 and concluded the week -1.55% lower at 1.4504, while EUR/GBP increased from 0.7373 to close the week +2.3% higher at 0.7544.
Key UK, U.S. and Eurozone Economic Data Releases for the Coming Week
GBP: The economic calendar for the United Kingdom features some closely watched events this week. The highlights start on Tuesday with Manufacturing Production, for which a 0.1% result is expected, followed by a talk by BOE Governor Carney. The next key events will be Thursday’s release of the MPC’s votes on the Official Bank Rate and Asset Purchase Facility that are expected to come out at 1-0-8 and 0-0-9 respectively. In addition, the MPC’s Official Bank Rate Decision is expected to leave rates unchanged at 0.50%, the Asset Purchase Facility is expected to remain unchanged at 375B, and the Monetary Policy Summary is also scheduled for release. Friday only has the BOE Credit Conditions Survey due out.
USD: The economic calendar for the United States is roughly as busy as last week. The highlights for the week commence on Tuesday with a talk by FOMC Member Fischer and the release of JOLTS Job Openings due out at 5.41M. Wednesday features Crude Oil Inventories for which the last result was -5.1M, and Thursday offers Weekly Initial Jobless Claims for which a 278K result is expected, a talk by FOMC Member Bullard and Import Prices due out at -1.5%. Friday will feature Core Retail Sales and Retail Sales expected out at 0.4% and 0.2%, Core PPI and PPI for which 0.3% is anticipated for both, the Empire State Manufacturing Index due out at -4.6 and a talk by FOMC Member Dudley. In addition, the Capacity Utilization Rate is expected to print at 77.0%, Industrial Production is due out at -0.6%, and the market is expecting a 92.6 result for the Preliminary University of Michigan Consumer Sentiment survey.
EUR: The Eurozone’s economic calendar cools down considerably this coming week. Thursday will offer the Eurogroup Meetings plus the Monetary Policy Meeting Accounts from the ECB, and the ECOFIN Meetings will be Friday’s highlight.
Sterling Technical Forecast, Spot Rates and Major Chart Points:
GBP/USD weekly forecast: mildly lower
Resistance: 1.4565, 1.4634 and 1.4805/1.4993
Spot Rate: 1.4516
Support: 1.4345, 1.4232 and 1.4108
EUR/GBP weekly forecast: lower
Resistance: 0.7535, 0.7592/94 and 0.7713
Spot Rate: 0.7520
Support: 0.7482/92, 0.7303/0.7442 and 0.7116/0.7249