UK manufacturing PMI was just inside expansionary territory at 50.1 in June, unchanged from the flash reading. Jonathan Haskel, a Bank of England external monetary policy committee member stated that the current policy is appropriate with activity recovering faster than expected but that the balance of risks are to the downside. Haskel was concerned that there are already indicators of rising unemployment and that there’s uncertainty as to how many furloughed workers will return to work. The Pound’s reaction was muted with expectations that the Bank of England would take further action later this year.
Boris Johnson reiterated that a free-trade deal with the EU can be reached but the UK is prepared for either outcome and uncertainty persisted. Sterling dipped lower as the US came online as traders took profits on yesterday's gains by selling the Pound. The Pound firmed up later in the day and scored a net advance this morning with a move to near 1.2500 against the Dollar and 1.1085 on the Euro as firm risk conditions shored up underlying support.
The US ADP report registered an increase in private-sector jobs of 2.37mn for June and below consensus forecasts of 3.00mn for the month. There was, however, a huge revision to May’s data with a monthly increase of 3.07mn compared with the original estimate of job losses totalling 2.76mn. The substantial revision brought the data much closer to the BLS monthly data but did little to boost the credibility of the ADP data.
The final PMI manufacturing index was revised slightly higher to 49.8 from the flash reading of 49.6. The ISM manufacturing index strengthened sharply to 51.3 for June from 43.1 the previous month. This was the strongest reading since May 2019 and the strongest monthly increase since 1980. There was a very strong recovery in new orders to 56.4 from 31.8 with production also securing a strong rebound. Strong data underpinned confidence and undermined the dollar as risk assets advanced.
The dollar declined sharply following the releases and commodity currencies also moved higher. The labour-market report will be released today ahead of Friday’s Independence Day holiday with expectations of a strong gain in payrolls for the second successive month with volatile trading likely following the release.
German labour-market data recorded an unemployment increase of 69,000 for June following a 238,000 increase the previous month and compared with consensus forecasts of an increase close to 120,000 for the month. The Euro-zone PMI manufacturing index revised higher to 47.4 for the final reading from the flash reading of 46.9 and the previous month’s figure of 39.4 and the German IFO institute expects a gradual recovery in the German economy with expectations of a 6.9% recovery for the third quarter after an 11.9% slump for the second quarter. The ECB maintained a slightly more optimistic tone over the economic outlook.
The Euro was, however, unable to make headway ahead of the US open and briefly dipped below the 1.1200 level as the Dollar held steady. As of writing, the Euro currently trades around the 1.1270 mark against its US counterpart.
Data to watch
12:30 - USD - Average Hourly Earnings
12:30 - USD - Non-Farm Employment Change
12:30 - USD - Unemployment Rate
12:30 - USD - Unemployment Claims
Posted in Daily Market News on Jul 2 2020