Market news

1 February 2016

American focus: the US dollar weakened

The US dollar continued to fall against major currencies after data showed that manufacturing activity in the US falls again in January, holding at lows since July 2009.

A report published by the Institute of Supply Management (ISM), showed that in January, activity in the US manufacturing sector has improved slightly, while exceeding the average forecast. The PMI index for the manufacturing amounted to US in January to 48.2 points against 48.0 points in December. It was expected that this figure will remain unchanged.

ISM report came after after data on personal income and spending by the Ministry of Commerce.

The Commerce Department reported that the volume of personal spending in the US was unchanged in December, which was associated with a decrease in purchases of cars and falling demand for public services due to the unusually warm weather.

According to the data, personal spending remained unchanged in December after rising 0.5 percent in November, which was revised down from 0.3 percent. Adjusted for inflation, consumer spending rose 0.1 percent following gains of 0.4 percent in November. Economists had expected consumer spending, which accounts for over two-thirds of US economic activity, will grow by 0.1 percent in December. At the end of 2015, consumer spending rose by 3.4 percent after rising 4.2 percent in 2014.

The report also stated that the amount of personal income rose in December by 0.3 percent, as in November. Wages increased by 0.2 percent after rising 0.5 percent in November. Overall, in 2015 personal income rose by 4.5 percent, recording the highest growth since 2012. Recall in 2014, revenues grew by 4.4 percent.

Given that revenue growth exceeded a change costs, the savings rate rose in December to $ 753.3 billion. (The highest rate since December 2012), compared to $ 717.8 billion. In November. The higher the amount of savings and the rise in house prices should help to soften the blow of the recent stock market crash, and stimulate the growth of spending in early 2016.

In addition, the Ministry of Commerce said that the price index for personal consumption expenditures fell 0.1 percent after rising 0.1 percent in November. For 12 months (to December), the figure rose by 0.6 percent after increasing 0.4 percent in November. Last growth rate was the highest since December 2014. The basic price index for personal consumption expenditures remained unchanged in December after rising 0.2 percent in November. Analysts had expected the index to rise by 0.1 percent. In annual terms, the core index increased 1.4 percent, as in November.

Previously, little impact on the dynamics of the euro was data for Germany and the euro zone. The Markit Economics said that the growth rate of activity in the industrial sector in Germany slowed to a three-month low in January as weak demand from abroad caused a decline in new orders. According to the data, the final Purchasing Managers' Index for Manufacturing fell to 52.3 in January from 53.2 in the previous month. The latter value was slightly above the 52.1 preliminary assessment, however, the index has fallen to its lowest level since October. Analysts had expected the index was 52.1 points. The report also reported that the decline in oil and commodity prices has significantly reduced purchasing prices, prompting the company to lower average selling prices. Despite the fall in prices, production and new orders increased at a slower pace, mainly due to weak demand in export markets. Meanwhile, the growth rate of outstanding orders were the weakest in three months.

Another report showed that the increase in activity in the manufacturing sector slowed in the euro zone beginning in 2016, as incoming orders failed to show a significant increase, although the companies have sharply reduced their selling prices. Manufacturing PMI for the euro zone fell to 52.3 points against 53.2 points in December. The index coincided with the preliminary assessment and to the median forecast of experts. Despite the decline, the index remained above 50, indicating expansion confident. Sub-manufacturing index fell in January to 53.4 points compared to 54.5 in December. The data also showed that the index measuring prices for the products of companies, fell to 48.3 from 49.8 in December, its lowest level since January 2015.

In focus were also statements by the ECB. Benoit Ker noted that during the March meeting of the European Central Bank will review and possibly revise the measures of quantitative easing. Ker added that the evidence clearly suggests that monetary policy has the desired result. Meanwhile, Ewald Nowotny said that he hoped for a more rational approach markets in March in respect of incentive measures. He admitted that for some months, inflation may reach negative values, and added that the core CPI remained relatively stable.

The pound rose against the dollar, supported by statistics on business activity. Today it became known that manufacturing activity in the UK grew moderately in January, against expectations of a slight deterioration, helped increase production. However, companies have reduced their staff at the fastest pace in three years and reported a decline in export orders. The index of manufacturing activity PMI rose to a three-month high in January and amounted to 52.9 points versus 52.1 points. Analysts had expected the index to fall to 52.1 points. The volume of production increased at the fastest pace since June 2014, which was headed by growth in consumer and investment goods. In addition, the data showed that manufacturers reduced their staff at the fastest pace since February 2013, while new export orders fell at the fastest pace since June of last year, while the pound fell about 3 percent on a trade-weighted basis in the last month. "The domestic market remains the key growth driver. Even after the recent weakening of the exchange rate, a number of manufacturers still indicate that a high rate of the pound against the euro had a negative impact on the inflow of orders", - said Rob Dobson, senior economist at Markit.

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