UK
The latest PMI figures out of the UK were underwhelming, to say the least, with business activity slumping into contraction this month, albeit only a very modest one, for the first time since October 2023. We see this as a direct consequence of the Autumn Budget announcement, with the large hikes to employer National Insurance contributions seen squeezing company profits, while triggering job losses and raising consumer prices.
Sterling has fallen sharply off the back of the data, briefly dropping below the 1.25 level on the dollar this morning. This is partly a consequence of markets racing to price in an additional rate cut from the Bank of England, which is now seen delivering three 25 basis point cuts over the next twelve months, up from just two prior to the data.
Euro area
The Euro Area economy appears to be heading towards contraction as we approach year-end, at least according to this month’s business activity composite PMI, which slumped to its lowest levels since January.
Businesses across Europe seem to be acutely concerned about the risks posed by president-elect Trump’s radical tariff proposals. This could weigh particularly heavily on the common bloc’s economy in the next few years, given that it relies on US demand for around 4% of its GDP.
Today’s data will be a major cause for concern for policymakers in Europe, and we are likely to see greater pressure on the ECB to deliver aggressive interest rate cuts in the coming months in order to support the bloc’s economy.
This could easily entail a jumbo 50 basis point rate cut at the Governing Council’s December meeting, which is now roughly 60% priced in by markets, a repricing that has triggered a collapse in EUR/USD below the 1.04 level this morning.
The information contained in this document was obtained from sources believed to be reliable, but its accuracy or completeness cannot be guaranteed. Any opinions expressed herein are in good faith, but are subject to change without notice. No liability accepted whatsoever for any direct or consequential loss arising from the use of this document.
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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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