UK PMI manufacturing fell well below consensus forecasts with a 34-month low, both new orders and employment declined although companies were optimistic over the outlook. Businesses are finding it hard to attract clients, locally and internationally. French President, Emmanuel Macron stated that the October Brexit deadline will final. Tory leadership contender Boris Johnson stated that the UK would leave on October 31st with or without a deal. As Donald Trump opined on the Brexit debate Sterling support declined as market priced in less potential for a negotiated deal.
The Euro pushed to highs near 1.1255, but the Pound recovered to near 1.2670 against a weaker US dollar. Overnight, BRC data recorded a 3.0% decline in year-on-year retail sales for May, reinforcing concerns for the outlook despite very strong figures last year distorting the picture. The Pound is little changed at market open, at 1.1255 on the Euro and 1.2680 on the Dollar. Parliament returns to work and this morning and Construction PMI is forecasted to remain fractionally in expansionary territory.
Eurozone manufacturing PMI remained unchanged from preliminary readings of 47.7, and the Italian sector showed improvement although still in contraction. The lack of confidence in the Eurozone outlook was unaffected by the data and German bond yields declined to record lows as growth fears intensified.
Concerns over US trade wars and a more dovish Fed policy helped the Euro gain on the Dollar, peaking at 1.1250 after the European market closed. European consumer inflation figures for May are due this morning and are forecasted to drop 0.4% as April’s Easter effect is discounted. It looks likely to confirm core inflation is still too low and any recovery would be threatened by trade war escalation and weaker Chinese growth.
The final reading for the US PMI manufacturing index declined slightly to 50.5 from the flash reading of 50.6. This was the lowest headline reading since September 2009 with new orders also declining for the first time in close to 10 years. The ISM manufacturing index declined to 52.1 for May from 52.9 previously and the lowest reading since October 2016. Production growth also slowed and order backlogs also contracted, although there was a slight recovery in the new orders and employment indices. Companies also reported difficulties in supply chains while prices increased slightly in the month. The manufacturing data reinforced concerns that trade friction and tariffs would damage the US economy.
St Louis Federal Reserve (Fed) President Bullard stated that an interest rate cut might be required soon on trade and inflation worries which further eroded US currency sentiment as speculation over a near-term rate cut intensified.
Concerns over US economic damage and a more dovish Fed policy continued to hurt the dollar as the Euro moved above 1.1200 and extended gains to 1.1250 as the dollar continued to retreat overnight. There was little change this morning as the dollar remained under pressure and Fed Chair Powell’s comments will be watched very closely.
Data To Watch
08:00 EUR Unemployment (Apr)
08:30 GBP Markit Construction PMI (May)
09:00 EUR Unemployment Rate (Apr)
09:00 EUR Consumer Price Index – Core (YoY) (May)
09:00 EUR Consumer Price Index (YoY) (May)
24h USD Fed’s Chair Powell speech
14:00 USD Factory Orders (MoM) (Apr)