The market's appetite for risk returned with a vengeance yesterday as equities, commodities and emerging market currencies all rose sharply, ending a dismal quarter on a positive note. Remarkably, neither Sterling nor the Euro benefitted from this environment, as they both continued their recent downward trend, driven by yet more positive data out of the US job market, which further highlights the divergence in economies, and thereby economic policies, across the Atlantic.
The final revision of second quarter GDP came in roughly as expected, up 2.8% annualised. In the absence of surprises, Sterling tacked a middle ground, falling modestly against the Dollar but scoring gains against the common currency.
The latest flash PMI from Markit, measuring growth in the UK manufacturing sector, will be released this morning. Another poor print may point to underlying weakness in the sector, rather than necessarily the effect of a stronger Pound on UK exports.
More disappointing news out of the Eurozone. It is back in deflation, as the CPI index printed at -0.1% for the year. Further, unemployment is stuck at the 11% level for the second consecutive month. This bad news meant that the common currency did not benefit from the generalised flight from the Dollar (in the context of returning risk appetite) and so fell against most of its major peers.
A couple of announcements in the Eurozone today are both worth noting. Growth in the manufacturing sector, which has dipped of late since peaking in June, is to be released by Markit at 9am this morning. This will be followed by the latest monetary policy meeting accounts from the European Central Bank's most recent meeting earlier this month, at just after midday. While unlikely, any clues on a possible expansion of Euro-area QE will likely weigh on the Euro today.
We saw further solid news out of the US labour market today. The ADP private employment indicator came out at 200,000 net jobs created in September. While we will have to wait for Friday's official report for confirmation, it seems that the US economy continues to generate over 200,000 jobs a month. The data point added to the good cheer and helped equity markets, and emerging market assets in general, recover some of their quarterly losses.
Attention in the US economy today will predominantly be on economic indicator data. The ISM's manufacturing PMI at 3pm is expected to cause the most volatility. US markets will also be paying close attention to a speech from FOMC member John Williams in Salt Lake City at 7.30pm today London time.