Poor US Manufacturing Data Raises Spectre Of QE3 By The Federal Reserve And Fails To Trigger GBP USD Rate Drop

Published: Friday, 25 May 2012 09:00 BST - Written by Minesh Chaudhari

STORY LINK Poor US Manufacturing Data Raises Spectre Of QE3 By The Federal Reserve And Fails To Trigger GBP USD Rate Drop

Yesterday saw a positive performance for European equities, following Wednesday’s sustained losses. Europe’s stock markets are increasingly taking two steps forward, then one step back, as markets participants struggle to make up their minds about just how bad things are in the eurozone.

It was a different story in the US however, as North American stocks edged lower on the day thanks in no small part to poor American manufacturing sector data, released yesterday afternoon. The Markit PMI survey dropped from 56.0 in April to show at 53.9 last month, suggesting that the US’s giant manufacturing sector is slowing. The closely-watched US Durable Goods numbers for April, released concurrently, struggled to break into positive territory, registering at a meagre 0.2%, following March’s shockingly poor print. The Durable Goods data gauges the level of spending by US businesses on plant and machinery which is expected to last at least three years; for this reason, it is considered an accurate bell-weather for confidence amongst the US corporate community. The fact that confidence levels took a marked step back in March and remained suppressed in April, spells bad news for the future prospects of the world’s leading economy.

These disappointing figures saw the benchmark Dow Jones index tumble by over one third of a percentage point by the time Europe closed. However, the US Dollar struggled to gain any significant ground in the aftermath of the US manufacturing releases, cementing the hypothesis that bad data from the US economy no longer immediately translates into US Dollar strength. Increasingly, poor US data releases prompt investors to factor-in a higher percentage chance of the Federal Reserve ramping up its quantitative easing programme later this year – a move which would elicit heavy selling pressure for the Greenback.

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