Peso to climb further on weak US economic data

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THE PESO is expected to climb further this week on weak economic data out of the United States last week and as Brexit negotiations continue.

The local unit closed at P51.295 versus the greenback on Friday, appreciating by 12 centavos from its P51.42-to-a-dollar close on Thursday.

Week on week, it strengthened by 28 centavos from its P51.58 finish on Oct. 11.

Dollars traded on Friday thinned to $1.036 billion from the $1.291 billion seen on Thursday.

Traders attributed the peso’s rally to positive sentiments regarding the United Kingdom’s (UK) exit from the European Union (EU) and weak US data.

“The continued strength and recovery of the peso came on the back of positive risk-on sentiments as we’re seeing weak US data on manufacturing and housing,” a trader said in a phone call, also noting progress in the Brexit talks.

“There’s this progress from the Brexit deal with the EU after three long years. It’s not that stepping stone yet compared to the vote from UK parliament this Saturday,” a second trader explained in a phone call.

US homebuilding tumbled from more than a 12-year high in September, but single-family home construction rose for a fourth straight month, suggesting the housing market remains supported by lower mortgage rates even as the economy is slowing.

The moderation in economic growth was underscored by other data on Thursday showing manufacturing output falling last month and factory activity in the mid-Atlantic region decelerating in October. The economy is being constrained by a 15-month trade war between the United States and China, which has dented business sentiment and caused a drop in capital expenditures.

Ironically, manufacturing has borne the brunt of the trade tariffs, which the White House argues are necessary to protect industries from what it says is unfair foreign competition. Other parts of the economy are also starting to show cracks from the trade war, with retail sales dropping in September for the first time in seven months and services sector growth slowing.

Housing starts declined 9.4% to a seasonally adjusted annual rate of 1.256 million units last month as construction in the volatile multi-family housing segment dropped, the US Commerce department said. Data for August was revised higher to show homebuilding accelerating to a pace of 1.386 million units, which was the highest level since June 2007, instead of marching to a rate of 1.364 million units as previously reported.

On the other hand, US manufacturing output fell more than expected in September, hampered by a strike at General Motors, and the outlook for factories remained weak amid slowing global growth and unresolved trade tensions.

The US Federal Reserve said on Thursday that manufacturing production fell 0.5% last month after an upwardly revised 0.6% rise in August. Excluding motor vehicles and parts, overall industrial production and manufacturing output still fell 0.2%.

The Fed’s measure of the industrial sector comprises manufacturing, mining, and electric and gas utilities. Industrial output declined 0.4% in September after an upwardly revised gain of 0.8% in August as a result of the manufacturing softness and drop in mining production.

Meanwhile, European Union leaders gave their unanimous backing to a Brexit deal with the UK on Thursday, putting the onus on Prime Minister Boris Johnson to secure the British parliament’s approval for the deal in a vote in two days’ time.

However, things did not bode too well for Mr. Johnson with the Parliament on Oct. 19, resulting in him having to send a letter on Saturday requesting a further extension to Britain’s departure from the European Union, an EU official said, with the British prime minister obliged to ask for a delay after losing a vote in parliament.

Mr. Johnson had hoped that Saturday would see recalcitrant lawmakers support the divorce deal he agreed with EU leaders this week and finally end three years of political deadlock since the 2016 referendum vote to leave the bloc.

Instead, lawmakers voted 322 to 306 in favour of an amendment that turned Johnson’s planned finale on its head by leaving the prime minister exposed to a humiliating obligation to ask the EU for a delay until the end of January 2020, and increasing the opportunity for opponents to frustrate Brexit.

“We have been headline driven lately. If we see something favorable na mukhang walang (that it seems like there will be no) hard Brexit… it’s favorable for risk sentiment that will help the peso,” the first trader said.

“All eyes will be on…Brexit voting and the advanced [estimate for] US GDP (gross domestic product),” the second trader explained.

The traders expect the peso to move within the P51.-51.60 against the dollar this week. — LWTN with Reuters