Are we seeing the portents of a UK recession?
Construction PMI data released yesterday showed the largest contraction in the UK construction industry since June 2009. The plunge from 51.2 in May to 46.0 in June was well below market expectations, showing that many construction-related projects may have been delayed until after the EU referendum. Some 80% of the survey was conducted before the 23rd June result, meaning that a vote to leave may have had limited impact on the overall survey. Next month’s Construction PMI will be scrutinised and further poor data will weigh on economic confidence.
A YouGov and Centre for Economics and Business Research (CEBR) opinion poll has shown that business confidence in the UK has fallen sharply. Scott Corfe of the CEBR commented that “business confidence is a leading indicator for where the economy is heading over the coming quarters. What it suggests is that the economy is in for quite a significant slowdown over the next three to six months.”
Ahead of today’s UK June Services PMI data there has been a large Sterling sell off in anticipation of weaker data. GBPUSD has fallen below 1.3200, along with GBPEUR dropping almost 1%. PMI data will be followed by the Bank of England (BoE) financial stability report and a speech from Mark Carney. Expect all eyes to be on the BoE Governor as traders attempt to decipher whether a rate cut is on the cards for the UK.
The race for the Conservative Party leadership officially begins today with the first ballot due. There are five candidates standing with ballots every Tuesday and Thursday. In each ballot the candidate with fewest votes will be eliminated. Assuming no one bows out early, there should be a new Conservative leader and Prime Minister on Thursday 14th July.
US banks reopen today after the Independence Day festivities yesterday. The bank holiday meant that there was no US data released, and trading volumes fell significantly. The Dollar was therefore left to Europe and Asia, with no significant change vs Sterling or the Euro throughout the day.
US Factory Orders data from May are due for release today, with the market expecting a slight decrease. This will be followed by Federal Open Market Committee’s (FOMC) William Dudley speaking in New York after the European close.
The Euro stayed relatively unchanged versus Sterling during yesterday’s European trading session as there was no data or significant news. The Euro continues to outperform the Pound, ending the day around the 1.1914 levels. Euro PMI services and composite data for June is due this morning and early predictions are set at last month’s figure of 52.4 and 52.8 respectively.
Data to watch: 9am EUR Services PMI. 9:30am GBP UK Services PMI. 10am EUR Retail Sales MoM. 10:30am Bank of England Financial Stability report. 11am UK BoE Governor Mark Carney speaks. 3pm USD Factory Orders MoM. 7:30pm USD FOMC Member Dudley speaks.