Following a sparse supply of economic data released yesterday, the focus today will fall heavily on the ECB interest rate announcement at midday and perhaps more significantly, the accompanying press conference where the chairman, Jean-Claude Trichet, may signal a further rate increase in December. In each of the prior months to a rate hike in the Euro-zone, Trichet has used a specific terminology that prepares the market for a further tightening of monetary policy the following month and if he reiterates that "strong vigilance" is still required, the Euro should receive a timely and much needed boost. Elsewhere, there is some significant data released this morning in the shape of the Purchasing Manager's report on European manufacturing and it is widely anticipated that the index will remain relatively unchanged at a reading of 56.7 in October.

The positive sentiment surrounding the Pound continued yesterday, rising 0.1% against the Euro and a further 0.2% against the Dollar, registering its highest reading this year at 1.9130, which was the high from the previous upside move. Sterling advanced despite a weaker-than-expected reading on UK manufacturing, which slowed to a reading 53.7 in October and suggests that economic expansion may be slowing in the fourth quarter. The pick-up in the service and manufacturing sector is key in the prospect for a further rise in UK interest rates and with factory production contributing to 15% of UK gross domestic product, the report yesterday will only fuel concerns that growth in the sector is slowing and will therefore curb economic expansion. However, the report also highlighted that output prices had risen to the second highest level in almost 3-years last month and with companies charging higher prices, it seems evident that the BoE will surely lift interest rates to 5.0% next week.

The Dollar fell to a fresh one-month low against the Euro yesterday following a damaging report on U.S manufacturing, which unexpectedly registered its lowest reading since June 2003 as factory production slowed following a decline in auto sales and a major slump in the housing market. The ISM factory index fell to 51.2 in October and although a reading above 50 indicates expansion, growth in the sector is obviously slowing and will be unable to bolster the economy over the coming months. The report is the latest in a string of weak economic data and contradicts recent hawkish rhetoric from Fed officials calling for a further rise in U.S interest rates from the current 5.25%. Elsewhere, a separate report showed that construction spending unexpectedly declined last month while the ADP employment report, which provides an insight into the Nonfarm Payrolls numbers this Friday and showed that U.S companies created 128,000 jobs in October, the most in four months.

Data Released 2nd November

GER 09:00 Unemployment (October)

EU 09:00 Manufacturing PMI (October)
EU 12:45 ECB Rate Decision
13:30 ECB Press Conference

U.S 13:30 Initial Jobless Claims (w/e 28th October)
U.S 13:30 Unit Labour Costs / Productivity (Q3)
U.S 15:00 Factory Orders (September)

written by Adam Solomon