FX-MM: “Euro strengthens on positive China output”

Publication date: 22 November
2012
Author: Philip Ryan, Currencies Direct

Equities across Europe have started
strong this morning for a fourth consecutive day following positive
signs that China’s manufacturing is improving. The release
overnight signals the first expansion in China’s factory output in
13 months and boosted optimism that growth in the world’s
second-largest economy is on the road to recovery after a
seven-quarter slowdown. The initial reading was 50.4 for a Chinese
purchasing managers’ index released today by HSBC Holdings Plc and
Markit Economics and falls above the last reading of 49.5 in
October. A reading above 50 indicates growth. A recovery in
manufacturing would support prospects for a continued pickup in
economic growth that slowed last quarter to the weakest pace in
more than three years.

Over to Europe and data tomorrow
will indicate modest growth in Germany and the euro-area, as
leaders of the 27 EU nations gather for negotiations in Brussels.
Today we have a Spanish bond sale (€3.5 billion) maturing in 2015,
2017 and 2021 today. The euro rose 0.23 percent to $1.2865 after
earlier touching $1.2868, the highest since early November.
European politicians who are squabbling over Greece, the destiny of
the euro, banking amalgamation and EU development need to reach
agreement on a proposed $1.3 trillion package lasting until 2014.
The euro debt crisis and a deadlock over Greek aid raise the stakes
for the talks, testing whether the bloc is heading for more
integration.

Yesterday the Bank of England
minutes were released revealing an 8-1 split on maintaining
quantitative easing at £375 billion as David Miles sought an
increase of £25 billion. This comes in the wake of inflation being
much higher than forecast than the targets that are set out by the
BOE, for the next 2 years.  Eight members of the MPC decided
that upholding the size of the asset purchase programme was
appropriate. Furthermore, the committee voted unanimously to keep
its key lending rate at a record low 0.5%.

As for the rest of the day, we the
US bank holiday so the headline calendar looks light with only
Canadian Retail sales of note where we are expecting 0.5% figure
month on month.

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