Headlines
UK manufacturing report rises slightly –
Strong Pound still weighs on manufacturing output.
Greek stock markets reopen –
Suffer huge losses.
GBP/USD down -30pips –
US manufacturing output decelerates.
GBP/CAD hits new to 6.5-yr high –
Crude oil dips below $50 a barrel.
Sterling
The latest UK manufacturing report showed that activity within the sector improved marginally in July. The factory output PMI printed at 51.9, up from a 26-month low of 51.4 in June. However, the subdued score was still much lower than government officials would have wanted and suggests that George Osborne’s ‘March of the Makers’ remains constrained by the recent appreciation in Sterling and the latest leg of the Greek debt odyssey. Rob Dobson of Markit Economics, who compiled the report, remarked that the fabled rebalancing of the economy ‘remains firmly in the rhetoric opposed to reality column’.
This morning’s construction report is tipped to show a sturdy score of 58.5, up from 58.1 previously, but the Pound is unlikely to rally on the result because construction only accounts for around 7% of British economic output.
Euro
The Pound to Euro exchange rate held steady yesterday even though Greek manufacturing came in at a record low of 30.2 in July – a full 19.8 points below the key 50.0 mark that separates growth from contraction. The dismal Greek PMI was by far and away the worst result in Europe but the overall Eurozone PMI actually printed in the green at 52.4 thanks to strong results in the Netherlands, Italy and Spain.
It was also a landmark day for Greece because after five weeks of closure the Athens stock market reopened. The index closed for the day -16% lower with banking stocks suffering losses of around -30% (the daily limit). Investors predict further losses for the banks over the next few days but foresee a rise in the general index as markets balance out.
US Dollar
Sterling lost out on around a third of a cent against the US Dollar yesterday even though a key measure of American manufacturing activity printed softer-than-anticipated at 52.7, compared to forecasts of 53.5. Some analysts said that the soft factory output figure correlated with a weak non-farm payroll report of 119,000 but others posited that Friday’s labour report would probably still come in above 200,000.
The key events to look out for this week for the GBP/USD pair are Thursday’s Bank of England inflation report and Friday’s NFP print. Both have the potential to seriously alter rate hike expectations and, as you know, this is a pre-eminent factor behind most movements in exchange rates.
Canadian Dollar
The Pound to Canadian Dollar exchange rate rose to a fresh six-year high yesterday as crude oil prices collapsed once more. For the first time since January the value of a barrel of brent crude dipped below $50 as concerns over the recent bout of extreme volatility in China weighed on global growth prospects.
Sterling could strike another seven-year high today if crude prices continue to slump and this afternoon’s Canadian manufacturing report disappoints.
Australian Dollar
Sterling gained a little bit of ground against the Australian Dollar yesterday as falling commodity prices and Reserve Bank of Australia rate cut fears weighed on the risk-sensitive ‘Aussie’.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate rallied by around a quarter of a cent yesterday due to the latest slide in the commodity markets. Analysts predicted that this afternoon’s dairy auction could see prices slide by a further -10%, which would have a significant negative impact on the domestic economy. Holders of the ‘Kiwi’ were also worried by predictions that the New Zealand unemployment rate will print at 5.9% this evening, up from 5.8% previously.
Data Released Today
09:30 GBP Markit/CIPS UK Construction PMI (JUL) Medium 58.5
14:30 CAD RBC Canadian Manufacturing PMI (JUL) Medium 51.3
15:00 USD Factory Orders (JUN) Medium 1.7%
23:45 NZD Unemployment Rate (2Q) High 5.9%