Daily Insight

The Pound made yet further gains against the majors yesterday, firming an additional 0.3% against the Dollar and 0.1% versus the Euro by the close last night, although Sterling did achieve a new yearly high against the single currency at 1.4980 earlier in the session. There was some positive economic data released yesterday as the Nationwide index for UK house prices increased by 0.7% in October, which will only fuel speculation that the Bank of England have the capacity to raise interest rates next month. The average cost of a home rose 0.7% from September to £169,623 while prices also climbed 8.0% year-on-year, the second highest level since February 2005. There is a sparse supply of economic data released in the UK this morning with the focus falling on the purchasing manager's report on manufacturing, which is forecast to show a modest drop towards a reading of 54.0 in October following robust gains the previous month.

The Euro has been under increased pressure against Sterling this week and the single currency lost yet more ground yesterday following a disappointing report on German retail sales, which unexpectedly dropped by the most in over two years in September as concerns over slowing economic growth and higher taxes next year, prompt consumers to curb spending. Sales fell 1.7% from August, the biggest decline since May 2004 while elsewhere, French consumer confidence dropped for the first time in five months. However, the Euro managed to stem the flow of bad news following a report into European consumer and industrial confidence, which increased by more than expected in October and it seems that the ECB's concerns that inflation will bounce back from a 2-year low are well founded. The sentiment index rose to a reading of 110.3 from September, the highest level since February 2001 while a gauge of Euro-zone inflation came in at 1.6%, staying below the ECB's 2.0% target for a second month in succession as oil prices continue to decline.

The rapid decline of the Dollar continued yesterday following a string of weak economic data that pushed the currency down to a one-month low against the Euro and rekindled concerns that the U.S economy was set for a hard landing next year. Firstly, a report on consumer sentiment showed that confidence had unexpectedly dropped to a reading of 105.4 in October despite the dramatic fall in energy prices over the last month. The uncertainty surrounding the U.S labour market is obviously causing concern for the consumer and it was widely thought that spending, which makes up two thirds of the economy, would help bolster economic growth and soften the blow of the slump in the housing sector. Elsewhere, the Chicago purchasing manager's index showed that business activity expanded at the slowest pace in over a year last month as a softening housing market continues to weigh heavily on economic growth. There is a host of significant data released in the States this afternoon with the focus falling on the ISM index into U.S manufacturing and the consensus forecast suggests a modest rise of 0.1% in October as growth in the sector remains near the 16-month low from September.

Data Released 1st November

UK 09:30 CIPS Manufacturing PMI (October)

U.S 13:15 ADP Employment Report (October)
U.S 15:00 Construction Spending (September)
U.S 15:00 ISM Manufacturing (October)
U.S 15:00 Pending Home Sales (September)

written by Adam Solomon