More Signals of Contraction Here, Inflation There

Manufacturing activity in the U.S. is soft, but may not be in a severe slump. According to the Chicago PMI report released yesterday, its business index rose to 48.2 in March from a six-year low of 44.5 in February. Although this reading is better than the 46 expected, it still signals a contraction as it is below a reading of 50. This Chicago index is widely watched as an indication of the outlook for overall manufacturing in the U.S., which makes up about 12% of the economy.

Traders and investors will be looking forward to the US ISM national manufacturing survey today, which is likely to be a big market mover. Average forecast is for the index to fall to 47.5, the lowest level in almost five years, from 48.3.

Eurozone Inflation Up

March consumer price inflation in the Eurozone surged to 3.5% on an annual rate, up from February's 3.3% and higher than expectations of 3.3%. These figures corroborate with the ECB's view that inflation is rising in the Eurozone and interest rates should stay where they are at present, despite concerns of a slowdown in Eurozone economy.

Forex Trading

The Euro hit as high as 1.5897 vs the U.S. dollar on Monday, almost touching its lifetime high of around 1.5905. And when Euro bulls failed to push the currency pair above the mark, aggressive shorting action pulled EUR/USD down by more than 100 pips to as low as 1.5790. Euro rose to a record high against the British Pound on weakening housing prices and poor consumer confidence in the UK. Hometrack said house prices fell for the sixth month in a row in March, pushing the annual rate of house-price inflation to a two-year low. There are now increasing odds of a rate cut by the Bank of England next week.