Sterling broadly flat ahead of UK manufacturing PMI

OVERNIGHT

Asia-Pacific equity markets are mostly lower in the first trading day of the year. The falls included Chinese stocks as investors digested weaker-than-expected official PMIs released at the end of last year. The country’s December manufacturing PMI fell to 49.0 from 49.4 in November, although the alternative Caixin manufacturing PMI this morning posted a marginal rise to 50.8 from 50.7. Markets will also be assessing geopolitical tensions and potential supply chain disruptions, including reports that Iran sent a warship to the Red Sea after the US Navy sank three Houthi boats at the weekend.

THE DAY AHEAD

The new year starts with S&P Global manufacturing PMI reports for December. For most jurisdictions, it will be a final release which are broadly expected to confirm preliminary flash estimates signalling ongoing contraction. In the UK, the flash estimate for the manufacturing PMI fell to 46.4 from 47.2, a 2-month low. The Eurozone equivalent index was even weaker at 44.2, although the rate of decline was unchanged from November. Among the Eurozone national PMI reports, the outcomes for Italy and Spain will be new readings. In both the UK and the Eurozone, service activity appeared to have fared better at the end of 2023, especially for the UK where the services PMI rose to a 6-month high of 52.7, raising hopes that the economy may skirt a technical recession. The final readings for December services PMI will be released later this week on Thursday.

Also in the UK, the British Retail Consortium released its shop price index overnight which was steady at 4.3% in December. That reflected an eighth consecutive fall in food price inflation, but the decline this month was offset by higher non-food inflation following Black Friday sales. 

Eurozone M3 money supply growth, including details on credit to the private sector, will be released and is expected to remain negative in the year-on-year comparison. The final score for the US manufacturing PMI is also released later today, with the consensus looking for a modest upward revision to 48.4 from the preliminary flash result of 48.2. The more closely watched ISM index will come out tomorrow. Construction spending data for November will also attract attention and is forecast to increase by 0.5% on the back of a 0.6% rise in October.

MARKETS

Sterling is broadly flat overnight against the US dollar and euro, above 1.27 and 1.15 respectively. The Japanese yen is lower as markets monitor the earthquake and aftershocks in the country. US 10-year Treasury yields are higher, above 3.90%. Oil prices are also trading firmer with Brent crude up more than a dollar at around $78.30.