Once the rash of European PMIs had been printed on Monday in the European morning session, lunchtime and afternoon was a relatively quiet period for high impact news events. However, the Eurozone’s ‘modest’ manufacturing recovery continues; the Eurozone’s manufacturing sector posted a rise in activity in October, despite French firms posting a weaker performance than expected. Markit’s monthly PMI survey, which measures thousands of firms across the euro area, rose to 51.3, from 51.1 in September. That suggests the sector kept expanding during the month, with only France and Greece failing to post growth.
Chris Williamson, Chief Economist at Markit said:
[quote]“The Eurozone manufacturing economy is undergoing its strongest growth period for two-and- a-half years, since the mounting uncertainty caused by the escalating sovereign debt crisis hit businesses hard in 2011. While it is in some respects disappointing that the PMI has failed to show a steeper pick-up over the last two months, the recent growth revealed by the survey indicates a marked turnaround in the health of the manufacturing economy. While the survey was signalling a 2-3% annual rate of decline in industrial production earlier in the year, a 2-3% rate of expansion is now being indicated. However, while the recovery goes on, it is by all measures frustratingly slow. In particular, the modest gains in output and new orders remain insufficient to encourage firms to take on more staff.”[/quote]
Late morning we received the UK construction PMI, which came in very bullish. The October data indicated that a sharp rebound in UK construction output continued at the start of the fourth quarter. Adjusted for seasonal factors, the Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) posted 59.4, up from 58.9 in September and above the 50.0 no change median level for the sixth month in series.
The latest reading signalled that overall output growth surpassed August’s recent peak and was the steepest rise since September 2007. Housing activity remained the strongest performing area in the construction sector, despite the pace of expansion slipping from September’s near ten-year high.
Markit economist Tim Moore commented:
[quote]”UK construction output continues to rise like a phoenix from the ashes, with housing, commercial and civil engineering activity all seeing strong rates of expansion at the start of the fourth quarter.”[/quote]
David Noble, CEO of the Chartered Institute of Purchasing & Supply, was encouraged to see firms hiring more staff:
[quote]The on-going growth of new business levels, climbing confidence and positive market conditions has resulted in the steepest rise in staffing levels for six years. Caution on employment experienced in the first half of 2013 has now been replaced by rising expectations and a strong belief that growth can be sustained in the year to come.[/quote]
US business spending plans have fallen sharply
Orders for a wide range of U.S. made capital goods slumped more than previously estimated in September as companies cut their investment plans. New orders of non-military capital goods other than aircraft, an indicator of business spending plans, fell 1.3 percent during the month, the Commerce Department said on Monday. US factory orders rose by 1.7% in September, bouncing back from August’s 0.1% decline. However, orders for general machinery fell by 2.6% and non-military orders for capital goods (excluding aircraft) fell. That suggests some firms may have put back major purchases as America headed into the federal government shutdown.
Separately, a survey of New York’s manufacturing sector showed a healthy rise in activity during October. The New York ISM survey jumped to 59.3 from 53.6 in September, mirroring last Friday’s data showing that activity across the wider US factory sector hit its fastest rate of 2013 in October.
Market overview
The DJIA closed up 0.15%, the SPX up 0.36% and the NASDAQ up 0.37%. European markets closed mainly up with STOXX up 0.30%, FTSE up 0.43%, CAC up 0.36% and DAX up 0.33%. The Portuguese index closed up the most by 1.05% on the day, with the Athens exchange falling the most by 1.27%.
Commodities endured mixed fortunes on Monday, ICE WTI oil down 0.13% at $94.49 per barrel, NYMEX natural down 1.62% at $3.46 per therm, COMEX gold up 0.11% at $131.70 per ounce, with silver down 0.81% at $21.66 per ounce.
Looking towards Tuesday’s open the DJIA equity index future is up 0.20%, SPX up 0.47% and the NASDAQ equity index future is up 0.30%. European equity index futures are looking positive at the time of writing; FTSE up 0.99%, CAC up 0.66% and the DAX up 0.33%.
Forex focus
The euro rose 0.2 percent to $1.3518 late in New York after falling to $1.3442, the weakest level seen since Sept. 18th. The 17 nation common currency gained 0.1 percent to 133.28 yen after sliding by 1.7 percent during the previous two days. The dollar slipped by 0.1 percent to 98.59 yen. The euro strengthened from its six-week low versus the dollar after the PMI report showed manufacturing in the currency bloc expanded for a fourth month in October.
Australia’s dollar jumped 0.7 percent to 95.08 U.S. cents after falling to 94.22 cents on Nov. 1st, the weakest level since Oct. 14th. The Australian dollar gained for the first time in three days after the Bureau of Statistics revealed that retail sales rose by 0.8 percent in September, compared with the median forecast of 0.4 percent in various surveys.
Sterling rose by 0.3 percent to $1.5972 after falling to $1.5904, the lowest level since Oct. 16th. The U.K. currency traded at 84.64 pence per euro. The pound strengthened versus most of its major peers after Markit Economics stated that its index of U.K. construction activity expanded at the fastest pace in six years.
Bonds
The U.S. 10-year note yield fell two basis points, or 0.02 percentage point, to 2.60 percent late in New York. The 2.5 percent note due August 2023 rose 5/32, or $1.56 per $1,000 face amount, to 99 1/8. The yield climbed to 2.63 percent on Nov. 1st, the highest level since Oct. 17th. Treasuries halted their three-day decline as Federal Reserve Governor Jerome Powell stated that the central bank will probably pursue its stimulative policy for some time.
Fundamental policy decisions and high impact news events that may affect market sentiment on November 5th
As European markets open we’ll have learned of the decision by the Australian RBA to (presumably) maintain their current base interest rate at 2.5%. Similarly the statement accompanying the decision will focus on some of the strong economic indicators the RBA has had at its disposal in order to maintain the current policy. There may be some discussion around the circa $200 bn asset purchase scheme that was effectively ‘opened’ by the RBA last week. The BOJ governor Kuroda will also hold court in the overnight/early morning session.
Spanish unemployment numbers are published in the morning session with the expectation that circa 31K will be added to the unemployment roll call. The Swiss publish their inflation figures, predicted to come in at 0.1%.
A critical PMI is published regarding the UK economy, the service PMI is integral to the UK given that the service economy is the bulwark of the UK economy. The expectation is for a print of 60.4.
The USA ISM non-manufacturing PMI is published with the prediction for 54.2. Later on in the evening we receive the latest unemployment data from New Zealand which will naturally affect the value of the kiwi, the prediction is for the rate to fall to 6.2%.
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