Euro Area Economic Outlook Brightens

Daily Analysis - 24/11/2017

Common Currency Gains for a Third Day


The Euro climbed for a third straight session against the US dollar on Thursday after a flurry of business polls from the region pointed to an improved growth outlook. Purchasing Managers’ Index (PMI) surveys covering both the manufacturing and the services industries in the Euro Zone surpassed even the most optimistic forecasts, signalling economic expansion was broad-based.

Euro-Positive Sentiment Grips Markets

IHS Markit's Euro Zone Composite Flash PMI surged to 57.5 in November from a final October figure of 56.0, the highest level reported since April of 2011 while outshining the median forecast of a flat reading of 56.0.  The Manufacturing PMI jumped to 60.0 from 58.5, the second-highest reading on record since the gauge was first introduced in June 1997, while the PMI mirroring the currency bloc's dominant service industry rose from October's 55.0 print to a six-month high of 56.2. The Euro was also underpinned by a lack of any major negative surprises from the minutes of the European Central Bank’s October 26th policy meeting, released earlier on Thursday. EURUSD gained 0.20% in the previous session after breaking through the 100-day moving average. The pair is pulling back modestly after earlier gains overnight, with EURUSD currently hovering around 1.1840.


Canada Reports Tepid Retail Sales

Adding to investor concerns that consumers are paring back their spending, which in turn, could set the stage for a significant slowdown in third quarter economic growth, Canadian retail sales grew far less than expected in September. Data unveiled by Statistics Canada late Thursday showed that the value of retail sales in the country edged 0.10% higher on a seasonally adjusted basis to CAD$49.06 billion (US$38.54 billion), well short of projections calling for a 0.90% rise. On a volume-adjusted basis, sales slipped -0.60% in September to record their biggest such dip in nine months. The retail sales report is the last significant piece of macroeconomic data before the release of third quarter GDP figures next week, with the consensus forecasting a sharp deceleration in growth. EURCAD is gaining early Friday to last trade around the 1.5075-mark.


Japanese Manufacturing Growth Accelerates

In the latest sign that the Japanese economy is likely to sustain its growth streak, manufacturing activity in the country expanded at its fastest rate in more than three years during November. On a seasonally adjusted basis, the preliminary Markit - Nikkei Japan Flash Manufacturing PMI advanced to 53.8 in November from a final October figure of 52.8. The reading stayed above the 50-zone that delineates expansion from contraction for the 15th straight month and marked the fastest growth pace since March of 2014. The sub-index for new export orders soared, reaching heights last seen in December of 2013 thanks to recent weakness in the Yen, while the output component of the PMI scaled to its highest point since 2014. NZDJPY fell to around 76.600 following the release of the PMI data before widening its retreat.


UK Business Investment Weakens

The degree of British business investment visibly softened during the third quarter, as the uncertainty linked to Brexit and the country’s future trading arrangements forced companies to tread cautiously.  A report issued by the UK Office for National Statistics on Thursday underscored more sluggish capital expenditures, with the amount of outlays growing at a quarterly clip of 0.20% in the July-September period, down from the 0.50% expansion recorded a quarter earlier. Separately, the ONS yesterday confirmed its preliminary estimate of third quarter economic growth. The UK economy expanded by 0.40% on the quarter, bringing the annualized pace GDP growth to 1.60%. While marginally faster than the first half of 2017, the figure came in significantly below the rate recorded during the final quarter of 2016. The GBPJPY pair is mounting a weak pullback early Friday from the lows of the prior session to last trade around 148.200.


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