Central Bankers given Sintra songsheet
UK Purchasing Managers’ Index (PMI) manufacturing declined to 54.3 in June, well below expectations of 56.4 and May’s figures were revised lower to 56.3. Orders’ growth fell to a five-month low and there was an easing of price pressures. The longer-term growth outlook suffered, with increased evidence of capacity constraints raising concerns that UK output growth will remain subdued over the medium term.
Sterling weakened after the data, retreating below 1.2950 against the Dollar but showed little overall change against the Euro around 1.1400. Global outlook provided some net support for Sterling in the form of oil prices and confidence as underlying political trends amid uncertainty surrounded the medium-term fiscal outlook.
Bank of England Monetary Policy Committee (MPC) member Vlieghe continued his dovish stance commenting a rate increase too late would be preferable to a delayed hike as Sterling was unable to regain ground. Following the Sintra Summit, the BoE & ECB seem to be using the same tactics of flagging up policy changes well in advance to test the market’s reaction.
US Markit PMI index was revised slightly lower to 52.0 from the flash reading of 52.1 but ISM manufacturing jumped to 57.8 in June (close to a 3 year high) from 54.9 last month. There were strong readings for the orders and production components, although there was a further cooling in inflationary pressures. The data overall increased confidence in the manufacturing outlook and there was some evidence of an underlying improvement in US conditions.
Liquidity started to decline ahead of today’s US Independence Day bank holiday and the Dollar was unable to make further headway overnight. The Euro opens just above 1.1350.
Eurozone PMI manufacturing nudged slightly higher to a fresh 6 year high. The unemployment rate was unchanged at 9.3% with an increase in the Italian and French rates. The Euro was hampered by talk that some ECB members were doubtful over removing the easing bias at July’s meeting. With August’s low liquidity, speculation now centres on September/October being the earliest for any changes.
Data To Watch
09:30am GBP PMI Construction (Jun),
10:00am EUR Producer Price Index (MoM) (YoY) (May),
11:00am GBP Inflation Hearings Report,
01:30pm EUR ECB’s Praet Speech,