As rain and gales batter parts of the UK this morning some unwelcome financial news also crashed ashore; the UK manufacturing sector posted its worst quarterly performance since the recession officially ended. PMI data published by Markit reveals that UK manufacturing output stands at 49.6 in December, output fell (the 50-point mark that separates expansion from contraction), it’s still a marginal improvement on October and November’s weak figures. Export orders rose in December for the first time since July, driven by demand for British foods from China, Germany and Eastern Europe, according to Markit. For the past quarter, however, UK manufacturing posted its worst quarter since the second quarter of 2009.
Germany’s manufacturing shows no such weakness whilst the singular unemployment rate of the leading European economy fell to post unification lows. The number of people out of work in Germany fell by 22,000 in December to 2.888m, sending the seasonally adjusted jobless rate down to 6.8%, the lowest level since reunification. This is in stark contrast to Spain, where the jobless level rose to a new record high this morning. This is the second major economic blow to hit Spain in four days as last Friday, it announced the Spanish deficit for 2011will be larger than the official target of 6% of GDP, and could hit 8%.
The Stoxx Europe 600 Index rallied 0.8 percent in the morning session, led by gains in the U.K. and Switzerland. U.S. equity-index futures will start trading at 6 a.m. New York time. The Dollar Index fell 0.4 percent, while the 10-year Treasury note yield increased five basis points to 1.93 percent. The yield on the similar-maturity French security jumped eight basis points. Oil rose above $100 a barrel and copper gained for a second day.
The dollar weakened 0.4 percent to $1.2980 per euro, which appreciated 0.3 percent against the yen after falling to an 11- year low yesterday. The yen depreciated against 12 of its 16 most-traded peers monitored by Bloomberg, while the New Zealand dollar strengthened versus all its major counterparts. U.S. crude jumped initially by around 1.5 percent to almost $109 a barrel, also reflecting a bounce over the Christmas period due to escalating tensions between Iran and the West. Spot gold rose as much as 1.4 percent to $1,586.95 earlier on Tuesday, also helped by investors renewed appetite for riskier assets.
Influential investor Jim Rogers, a well-known commodities bull, told Reuters he remains bullish on commodities in general but expects gold will drop further given the run-up over the last 10 years.
“In my view, gold could go to $1,200-$1,300 (an ounce),” Rogers said in an interview with Reuters Insider.
The dollar has fallen 0.5 percent in the past week, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The greenback gained 1.1 percent last year, snapping two years of losses. The euro was the worst performer in 2011, sliding 2 percent. The Australian and New Zealand dollars advanced to the strongest level in three weeks as stocks rallied.
The dollar fell the most in two weeks against the euro as signs that manufacturing is expanding in the U.S. and China damped demand for safer assets. The greenback weakened versus all but two of its 16 major counterparts before a U.S. report that economists said will show manufacturing grew at the fastest pace in six months, after data this week showed gains in gauges for China and India. The Australian and New Zealand dollars strengthened for a fourth day as a stock rally spurred demand for higher-yielding assets.
Market snapshot at 10:30 am GMT (UK time)
Asia pacific markets fared well in the overnight early morning session. The Nikkei closed up 0.67%, the Hang Seng closed up 2.40% and the CSI closed up 1.49%. The ASX 200 closed up 1.10%. European bourses have traded mostly up in the morning session, the STOXX 50 is up marginally 0.08%, the UK FTSE is up 1.07%, the CAC is down 0.55% and the DAX is up 1.15%. ICE Brent crude is up $2.41 a barrel ($109.48) whilst COMEX gold is at $1591.48 up $23.8 per ounce.
The dollar fell 0.8 percent to $1.3038 per euro at 10:11 a.m. in London, the biggest intraday decline since Dec. 21. The U.S. currency declined 0.2 percent to 76.76 yen. The euro gained 0.6 percent to 100.09 yen after falling to 98.66 yesterday, the weakest level since December 2000. Australia’s dollar rose 0.9 percent to $1.0325 after climbing to $1.0328, the strongest since Dec. 8. The New Zealand dollar appreciated 1.1 percent to 78.71 U.S. cents.
Economic calendar data that could affect sentiment in the afternoon session
15:00 US – Construction Spending November
15:00 US – ISM Manufacturing December
19:00 US – Minutes of FOMC Meeting December
A survey of analysts compiled by Bloomberg showed a predicted figure of 53.2 for manufacturing. This is slightly higher than last month’s figure of 52.7.
The FOMC minutes offers key insights into Fed monetary policy decisions, as well as providing a glimpse of the Fed’s views on the economic prospects for the US and beyond. One of the key areas in the report are the comments pertaining to future interest rate changes, or any discussion of sectors which are causing the committee to have inflationary concerns. Anything that conveys the mood of the committee is also usually considered a significant part of the notes.