Intraday Market Thoughts

Euro Drops On Weak Manufacturing PMIs

by Patrik Urban
May 2, 2012 12:18

European manufacturing PMIs disappointed; labor market in Germany still strong but shows negative signs; UK construction PMI slowed but remained relatively strong; Swiss PMI dropped. Market turns to ADP and factory orders. The latest Intermarket Insights include latest Daily and Weekly charting on EURUSD and insights on AUDCAD. See below for more details.

The USD is stronger across the board in the ongoing session. European equities trade within -0.4% and +0.7% and the relative strength winner is CAD while NZD lags.

The common currency declined today after a slew of weak reports was released. French, Italian and Spanish manufacturing PMIs all disappointed and confirmed a faster pace of contraction. Even German April manufacturing PMI was revised lower to 46.2 from the initial estimate 46.3. The labor market in Germany showed only a little change as the number of unemployed people rose by 19K in April erasing the 13K decline from March but the unemployment rate remained steady at 6.8%.

Other news from Eurozone do not provide a reason for optimism either March unemployment rate ticked up to 10.9% from 10.8%; April manufacturing PMI was revised lower in April to 45.9 from 46; Greek manufacturing PMI fell to 40.7 and Italian jobless rate shot up to 9.8%. EURUSD fell from 1.3230 to 1.3135.

In contrast, UK construction sector continues to expand, albeit at a slower pace, as PMI printed 55.8 in April from previous 56.7. Moderate job creation continued, the input inflation reached the lowest level since 3/2010 and the confidence in 12 month outlook remained strong. UK mortgage approvals rose in March to 49.9K from 49K. EURGBP trades heavy near session lows just above the 0.81 level.

Swiss SVME PMI dropped to 46.9 in April from previous 51.1 which is the worst result since November 2011. CHF weakened slightly but against the EUR it remained just a dozen points above the 1.20 level. Worsening data is likely to bring back rumors that the SNB could move the EURCHF floor higher.

The NY session begins at 8:15 am ET with ADP report that is expected to decline in April to 178K from previous 209K followed by factory orders at 10:30 am that are forecasted to decline by 1.5% in March which would negate February's 1.3% gain.

Richmond FED president and FOMC member Jeffrey Lacker delivers a speech on economic outlook at 12:30 pm. His yesterday's comments were slightly hawkish.

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