UK PMI Manufacturing

At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.

Cash and income timing from a UK Pension income drawdown, flexible pensions or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension drawdown, QROPS and investment income taken.

Investment market volatility and currency exchange remains a challenge. The global economics are volatile and unprecedented in history. Currency exchange continues to concern expats with UK Pensions, income drawdown now including flexible pensions, a QROPS and QNUPS (Qualifying non UK Pension schemes).

In the UK the ultimate question of quantitative easing has almost certainly progressed from an

“if” to a “when” and so far expectations are of October or November. Such announcements

have, in the past, had significant detriment to the Sterling and the market appears to be

expecting the same this time. It is feasible, however that the market has already adjusted for the

rude surprise. This “clenched” reaction is certainly what we saw when Ms Merkel won a not dissimilar

vote in the German Parliament last Friday. Optimists will look at the positive PMI

(manufacturing) data from September as an adequate reason to hold off on QE and certainly the

first glimpse of growth in 3 months is not to be ignored. Everybody else, however is likely to

identify this as the catching up of backlog.

GBP/USD

Cable was nothing short of a rollercoaster yesterday with drop offs of 50, 43 and 69 pips.

Session high of 1.5573 and low of 1.5423, trading range of 150 pips and -1%. The US was

strengthened off the back of positive growth in the manufacturing industry, revealed by

September’s ISM report. However this 1% Month on month gain could only have had a nominal

contribution to the performance of the cross.

In Europe the single currency resumed its downward spiral on all fronts yesterday as fears of a

Greek default edge ever closer to materiality. This itself will not be news to many and alone

would not account for the currency’s performance today. What has changed is the market’s

faith in the remaining nations to be able to survive the default. A symptom of this is the credit

review of Franco-Belgian bank, Dexia by Moody’s. Although the officially reason is given as

“worsening funding conditions in the wider market” the bank’s €3.4bn Greek exposure cannot

be ignored.

GBP/EUR

Few will have foreseen the extent of the Euro’s fall off against Sterling yesterday. A splash-dash

23 pip recovery early this afternoon was likely a knee jerk reaction to the 32 pip drop seen just

minutes earlier. Sterling closed the session at a high of 1.1717 from a low of 1.1612. Analysts

will be ringing alarm bells as the cross approaches the 1.1723 mark, a high not seen since March

3rd 2011.

USD/EUR

A similar picture was painted against the US Dollar today. A dramatic 100 pip free-fall around

lunchtime was dwarfed only by the session’s trading range which saw a 195 pip fall out against

the session high of 1.3381 – the session low touching 1.3186 and closing just a shade above.

IN THE UK

• UK PMI Manufacturing data from September offers the first glimpse of growth in 3 months and the pound post gains against the euro breaching the €1.16 mark with further gains overnight, fast approaching €1.1723 a rate last seen in March 3^rd
• GBPUSD reached a high of 1.5573, session low of 1.5423 and a trading range of 150 pips – dropping -1% through the course of the session.
• Standard & Poor’s today maintained the UK’s AAA debt rating.
• UK Chancellor, George Osborne, has pledged to stick to his plan to use low interest rates to trigger national growth. Families and businesses would not be able to absorb the extra costs of increase in loan and mortgage repayments.
• The FTSE opens on the back foot this morning and falls below 5000.
• UK PMI Construction is released this morning, yesterday manufacturing surprised the markets with a better than expected figure, today’s figure showed a contraction to 50.1, below the consensus of 51.7 causing sterling to lose some of this morning’s early gains.

ELSEWHERE

• The US dollar makes gains across the board as investors look for alternative safe havens, avoiding CHF,JPY and Gold.
• FT Deutschland poised the question of George Papandreou’s resignation today – there is no official comment from the office of the Greek Prime Minister.
• AUD/USD broke to one-year lows to below 0.9450.
• The EU have said Greece are in line to receive their next bailout tranche of €8bn, suggestions are that Greece have enough money to operate until November.  
• Fitch downgrade world growth forecast for 2011 to 2.6% from 3.1%, Goldman’s drop 2012 Global GDP forecast to 3.5% from 4.3%.
• RBA leave interest rates on hold as largely expected but remain ready to drop them if necessary.

DATA TO LOOK OUT FOR (all times UK BST)

• Eurozone Producer Price Index is released at 10.00am, the figures in both the annual and monthly format are expected to show a slight contraction and could put further pressure on the faltering euro.
• ECB President Trichet speaks ahead of Thursday’s ECB rate announcement, there could be some clues in speech which begins at 2.00pm
• Fed Chairman Ben Bernanke gives a press conference at 3.00pm is likely to talk about ‘Operation Twist’ and widespread global debt issues and slowing economies
• UK BRC Retail Sales Monitor is released at 00.01am and will help to give a up to date picture of UK Retail Sales

Gerard Associates Ltd advises UK residents, expats and people considering living abroad on the technical and currency options available for Pensions, pension income drawdown, flexible pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.

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