Euro Weekly 8 June 2018
Manufacturing PMI came in at 54.4, half a point higher on the month and nearly a point above forecast. Sterling strengthened by an average of 0.6% after the announcement and adding three quarters of a euro cent. However, despite a UK construction sector purchasing managers’ index that was unchanged on the month and half point above forecast. Sterling lost ground to all the majors and just about everything else, falling by an average of 0.6%. This is due to the uncertainty around Brexit and the gathering storm of the major vote in parliament and rumours of a split Cabinet. Next Tuesday the prime minister wants parliament to debate 15 amendments to the EU withdrawal legislation before scrapping them and voting the bill through unchanged. Investors are not convinced that such an approach is in the best interests of the economy or the pound. The “Markit” purchasing managers’ index for Britain’s services sector came in at 54.0 for May, a point ahead of forecast. This proved to be good news for the pound, despite the numbers looking less-than-stellar in contrast to the US figures.
Sentix reported a halving of Euroland investor confidence from 19.2 to 9.3 and producer prices in the euro zone were flat on the month, leaving them 2.0% higher on the year. Neither announcement had a demonstrable effect on the euro. European economic statistics showed Spanish industrial output increasing by an annual 1.9%, considerably less than the anticipated 5.0%, and Swiss inflation accelerating from 0.8% to 1.0%. South African business confidence was two points softer at 94. There are rumours that the European Central Bank might bring forward to next Thursday the policy announcement that had previously been expected to come in July. That announcement is supposed to shed more light on the winding down of the bank’s asset purchase programme.
One of the key takeaways from a recent G7 meeting was the “unanimous concern and disappointment” felt by finance ministers and central bank governors regarding Donald Trump’s new trade tariffs. The dollar faltered a little after the stern words. G7 heads of government will meet today in Quebec and the omens are not good. The current acrimony between Trump and the six leaders of the free world is in the spotlight. Normally, G7 summits attract only passing interest from financial markets but this one is a bit different, in that the US president might be persuaded to modify his stance on trade. Although some analysts argue that US import tariffs will be positive for the currency, the overall picture will not become clear until America’s victims pull the trigger on their retaliatory measures. The US did have good news to share early in the week, but the president’s pre-empting of the employment data release spoiled any chance for the dollar to make gains on the back of it. Nonfarm payrolls exceeded forecast by a net 50k and unemployment ticked down to 3.8%. However, the dollar received no further help from the strong data when they appeared, partly due to a tweet from the President earlier in the day highlighting the numbers and it lost a cent to sterling. US factory orders fell by 0.8% in April instead of the forecast 0.5% but the dollar remained unchanged. Nor did the greenback move on the announcement of the services sector PMI despite a result of 56.8, beating predictions by 1.1 point.
The Canadian dollar has been struggling this week. It appears that investors feel that analysts were previously too optimistic about the number of times the Bank of Canada (BoC) can raise interest rates during the months ahead because of the increasing levels of uncertainty about the future of the North American Free Trade Agreement. While many feel the long-term outlook is optimistic, in the short term the Loonie may be in for something of a bumpy ride.
The 0.4% monthly increase in Australian retail sales, reported early this morning, helped the Aussie ahead early in the week and it shared first place with the pound. More good news in the service sector for Australia; the PMI came in at a healthy 59.0. Australian first quarter GDP growth came in at 1.0%, beating the forecast 0.9%. Annual growth also exceeded expectations, at 3.1% instead of 2.8%. As expected, the Reserve Bank of Australia held interest rates at 1.5% for the 20th straight month.
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