UK PMI set to decline as markets look to US ADP and ISM
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
Concerns about the UK economic recovery in Q4 could return today with the publication of the October manufacturing PMI numbers this morning. The numbers are expected to slip back further from the 48.4 in September to 48.
Last week?s CBI manufacturing numbers didn?t paint a particularly positive picture on the order side of things and the worry is that this could well translate into a particularly poor number given the similarly poor European numbers seen from Germany and France late last week.
A particularly poor number could well raise expectations about further QE from the Bank of England at next week?s rate meeting, even though Deputy Governor Charlie Bean appeared to play down the prospect yesterday in a speech to business leaders.
Today?s publication of the latest US ADP jobs report numbers will be subject to greater scrutiny than usual today due to a change in the methodology which calculates the numbers. The reasons for the change are partly due to criticism that the numbers often wildly diverge from the official numbers and the reasons for the change is to make it more consistent with the official numbers, which normally get published later in the week.
ADP has already published its September adjustment and previous month?s revisions and this has caused some consternation due to the fact that it revised the number down from the original 162k to 88.2k, by almost half. August was also slashed from 189k to 76.4K.
The estimate for October is expected to come in at 135k; however given the massive adjustment lower already in August and September today?s number could surprise significantly to the downside as well.
Whether it could potentially give clues to tomorrow?s official government numbers is another matter given that the changes, but the market reaction could be choppy.
Make no mistake the economic data due to be released today and tomorrow could well be pivotal for next week?s Presidential vote, with Obama putting some distance between himself and Romney already this week with his handling of the storm crisis on the east coast.
Disappointing economic data could well dent that recovery in the polls and today?s data starts with the newly revised payrolls numbers, followed by weekly jobless claims which are expected to be around 370k,
Soon after that we have the delayed October consumer confidence numbers from Tuesday which are expected rise to 73 from 70.3 in September. At the same time the latest October manufacturing ISM numbers are expected to slip back slightly to 51.2 from the surprise rebound seen to 51.5 in September.
EURUSD ? the single currency failed to maintain enough momentum to overcome the 1.3030 resistance area yesterday, slipping back in the afternoon session.
The key supports remain at trend line support from the 1.2045 lows, at 1.2900, the 200 day MA at 1.2835 and the golden cross on the 50 and 200 day MA.
A break of 1.3030 on the upside suggests a move towards trend line resistance 1.3105, from the 1.4940 highs.
Only a move above 1.3240, targets 1.3495, the 50% retracement of the entire down move from 1.4940 to 1.2045.
GBPUSD ? the key pound appears to be gearing up for a move towards 1.6285 trend line resistance from the 2011 highs at 1.6750, but we need to break above 1.6150 to do it.
Any weakness should find support at 1.5910, last weeks low, and 38.2% retracement of the 1.5270/1.6310 up move.
EURGBP ? yesterday?s failure near the 0.8070 area brings the 0.8000 support at the 55 day MA now back into focus. As long as 0.8000 holds expect more range trading between these lows and the highs this week. A break above 0.8070 would retarget the 200 day MA at 0.8110.
USDJPY ? the 80.00 level is continuing to prove a tough nut to crack. The US dollar needs to push back above the 80.00 level and take out the June highs at 80.60. We also need to close above 79.80 on the week to open up a move to 81.00 which is the top of the weekly cloud.
Support comes in around the 200 day MA and the lows this week at 79.20 Only below 79.20 targets 78.50.
Equity market calls
FTSE100 is expected to open 5 points higher at 5,788
DAX is expected to open 11 points higher at 7,272
CAC40 is expected to open unchanged at 3,429