Inflation concerns remain a key element in global markets due to latest PMI data.

Inflation concerns remained a key element in global markets, especially with strong upward pressure on costs in the PMI data. There were further expectations that the Fed would have to tighten more quickly in response.

US bond yields moved higher on Tuesday, but there was a retreat on Wednesday. Wall Street stocks were resilient with some relief over a late retreat in yields. Global equities overall were little changed with supply-side issues important.

The dollar maintained a strong tone on Fed expectations, but retreated slightly from 16-month highs. EUR/USD found some support at 16-month lows, but failed to make significant headway to trade just below 1.1250. Sterling recovered from intra-day lows with a GBP/USD rebound from fresh 2021 lows below 1.3350 amid BoE tightening expectations.

Commodity currencies pared intra-day losses with a rebound in oil prices supporting the Canadian dollar.

The Euro-zone PMI manufacturing index edged higher to 58.6 for November from 58.3 and above expectations of 57.3. The services sector also confounded expectations with a net gain to a 3-month high of 56.6 from 54.6 in October.

There were further strong gains in employment and order backlogs increased, although overall business confidence dipped to a 10-month low. There was a record increase in input costs for the second month running while selling prices increased at the fastest rate for close to 20 years.

ECB Council member Knot stated that current supply-side shocks may not be temporary and that the central bank is likely to stop emergency bond purchases in March 2022. The Eurozone data provided an element of relief, but the Euro was still hampered by unease surrounding coronavirus developments.

The US PMI data was mixed as the manufacturing index strengthened to a 2-month high of 59.1 rom 58.4, but the services-sector component dipped to a 2-month low of 57.0 from 58.7. There was a further increase in order backlogs while companies continued to face severe supply-side difficulties with further deterioration in vendor performance and persistent labour shortages.

Manufacturing costs increased at the strongest rate since the survey began with selling prices increasing at the second-fastest rate on record. The increase in service-sector prices was also the highest on record as companies looked to pass on cost increases.

The data will maintain concerns surrounding inflation pressures in the economy with further pressure for the Federal Reserve to tighten policy at a faster rate.

EUR/USD found some support at 16-month lows around 1.1225 with a tentative rally. Overall Euro confidence remained fragile and just below 1.1250 on Wednesday.

The US Richmond Fed manufacturing index edged lower to 11 for November from 12 the previous month with a slower increase in new orders. The labour-market components remained strong while there was a net easing of upward pressure on costs and prices.

US Treasuries continued to lose ground during Tuesday with the 10-year yield increasing to above 1.65%. Higher bond yields continued to underpin the dollar and the yen remained generally on the defensive, although USD/JPY did hit persistent selling interest above the important 115.00 level.

Japan’s PMI manufacturing index edged higher for November while the services index posted the strongest advance since September 2019.

Japanese equities declined after being closed for a holiday on Tuesday, although other Asian markets were little changed as risk appetite held steady. US yields retreated during the Asian session which limited further dollar support and USD/JPY traded just below 115.00 in Europe with EUR/JPY around 129.25.

The UK PMI manufacturing index edged higher to a 3-month high of 58.2 for November from 57.8 previously and above consensus forecasts of 57.3. The services-sector index declined marginally to 58.6 from 59.1, in line with expectations. Sterling failed to gain from the data with fresh 2021 lows below 1.3350 against the dollar.

Bank of England MPC member Haskel stated that a gradual increase in interest rates would represent a return to normal. He noted that labour-market developments would be very important and that the bank needs to be vigilant about rising labour costs. In particular, he noted the risk that wages increases increase at a faster rate than productivity which would put upward pressure on inflation. Nevertheless, he still expressed reservations over an early move to hike rates.

Bank Governor Bailey also commented that the labour market is very tight and he also warned that the bank may not give significant forward guidance in the future.

Economic Calendar

09:00CHF ZEW Expectations(NOV)15.6
09:00German Business Expectations(NOV)96.495.4
09:00IFO - German Current Assessment(NOV)100.1
09:00IFO - German Current Assessment(DEC)
09:00Germany GDP (Q/Q)1.80%
11:00CBI Distributive Trades Survey(NOV)30
11:00GBP CBI Industrial Trends Orders (NOV)9
13:30USD PCE Core Price Index (Y/Y)(OCT)3.60%
13:30USD PCE Core Price Index(M/M)(OCT)0.20%
13:30USD GDP (Annualized)2.00%
13:30USD GDP Price Index (Q/Q)6.00%5.70%
13:30USD Goods Trade Balance(OCT)-97.03B
13:30USD Durable Goods Orders Ex Transportation(OCT)0.40%
13:30USD Durable Goods Orders (M/M)(OCT)-0.40%
13:30USD Personal Income (M/M)(OCT)-1.00%
13:30USD Personal Spending (M/M)(OCT)0.60%
16:00USD Michigan Consumer Sentiment(NOV 08)66.8
16:00USD Michigan Consumer Sentiment(NOV 01)
21:45NZD Trade Balance (M/M)(OCT)-2171M
21:45NZD Trade Balance (Y/Y)(OCT)-4090M

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.