This morning's positive economic data persuaded investors to reconsider putting a little risk back on the table. Chinese manufacturing PMI reflected further expansion and Eurozone manufacturing PMI data for Oct indicated that the recovery in the region remains on track. A bigger surprise came from the UK Oct manufacturing PMI data which at 53.7 blew out expectations. Production contributes just 17% to the total UK economy which highlights why the services PMI data due later in the week is of far greater relevance.
Even so, today's data offset previous signals that the recovery in UK production may already be slackening. Sterling has received a tidy boost from the data; following earlier losses cable has climbed back above 1.6400. The data has also thwarted the upward push in EUR/GBP back to 0.9030.
The positive tone of today's data has allowed the EUR to push higher vs both the USD and the JPY and encouraged the AUD/USD to climb back above the 0.9050 level. As reflected by the cautious tone in stocks markets, however, risk appetite remains contained. Fears that economic recovery in the developed world will be lacklustre have been underpinned by disappointing sales figures included in Q3 corporate earnings reports. Not just that but with the week ahead containing meetings of the Fed, the BoE and the ECB in addition to the US payrolls release and a G-20 meeting, there is the potential for several surprises. In spite of today's good today, the fear of more QE from the BoE this week is likely to keep sterling on the defensive while the risk that the G-20 meeting may bring further verbal support in favour of a strong USD should keep a lid on rallies in EUR/USD.
Oil prices moved higher overnight in response to the better Chinese PMI data. Norway's industry minister warned that the strengthening NOK could hurt exports. EUR/NOK is little changed from Friday's close following a fairly volatile morning. Australian Treasurer Swan said this morning that the economy will grow faster than previously forecast which will allow for a deficit reduction of AUD50 bln over the next 5 years. AUD/USD has stalled at the 0.9080 area this morning ahead of an anticipated rate hike from the RBA tomorrow.
This afternoon US ISM manufacturing and pending home sales are due.
