The final reading for the UK PMI manufacturing index was revised slightly higher to 46.2 from the flash reading of 45.8, but this was still below September’s figure of 48.4 and signalled further contraction. Output, new orders and exports all declined on the month and overall business optimism dipped to a 30-month low. Sterling maintained a firm tone ahead of Tuesday’s New York open with net gains in equities underpinning the currency as it strengthened against the dollar. The Bank of England held its first auction to sell gilts as part of the quantitative tightening programme. There was a more defensive risk tone following the US data and the US currency also posted wider gains. In this environment, the UK currency dipped sharply to lows before stabilising. BRC data recorded a 6.5% increase in shop prices in the year to October, maintaining concerns over inflation pressures. Risk appetite stabilised in Asia with Sterling higher against the dollar. There will be choppy Sterling trading over the next two days given the Federal Reserve and Bank of England policy decisions.
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The Euro posted net gains into Tuesday’s New York open with a fresh decline in dollar demand and the single currency posted highs towards parity. The Euro also drew support from hawkish ECB rhetoric with expectations of further rate hikes and a suggestion that bond sales could start from early 2023.
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The US ISM manufacturing index edged lower to 50.2 for October from 50.9 the previous month and the lowest reading since May 2020, but marginally above consensus forecasts of 50.0. New orders improved slightly on the month, but remained in contraction territory while production secured small net growth on the month. Employment was unchanged on the month while supply-side pressures eased. The prices index dipped to 46.6 for the month from 51.7 previously and was the lowest reading since May 2020. There has also been a very strong reduction in inflation pressures over the past few months. The US JOLTS data recorded an increase in job openings to 10.7mn for September from a revised 10.2mn the previous month and well above consensus forecasts of 10.0mn. The sharp decline in job openings for August increased speculation that the labour market was softening which increased speculation that the Fed would be able to slow the rate of interest rate increases. The strong rebound in the latest data curbed speculation over a more restrained Fed policy and the dollar regained ground, especially as a dip in US equities also underpinned the US currency.
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13.15 ADP Employment Change (Oct) Exp. 195K Prev. 208K
19.00 Fed Interest Rate Decision Exp. 4% Prev. 3.25%
19.00 Fed Monetary Policy Statement
19.30 FOMC Press Conference