U.K. construction PMI rises to 4-month high of 62.6 in June
U.K. construction sector activity expanded at the fastest pace in four months in June, fuelling optimism over the country’s economic outlook, industry data showed on Wednesday.
In a report, market research firm Markit and the Chartered Institute of Purchasing & Supply said that their U.K. construction purchasing managers' index improved to a seasonally adjusted 62.6 last month from a reading of 60.0 in May. Economists had expected the index to decline to 59.5 in June.
The headline index has now posted above the 50.0 no-change threshold for 14 months running and the latest reading signaled the strongest pace of overall output growth since February.
Stronger new order volumes and ongoing efforts to boost operating capacity contributed to the steepest rise in employment levels since the survey began in April 1997.
Commenting on the report, Time Moore, senior economist at Markit and author the report, said, “The latest survey suggests that the U.K. construction sector has expanded by more than 1% over the second quarter of 2014, driven by improvements in the underlying health of the economy, favorable funding conditions and robust increases in new housing starts.”
Following the release of the data, the pound added to gains against the U.S. dollar, with GBP/USD rising 0.14% to trade at 1.7173, compared to 1.7151 ahead of the data.
U.K. services PMI falls to 3-month low of 57.7 in June
Service sector activity in the U.K. expanded at the slowest pace in three months in June, dampening optimism over the country’s economic outlook, industry data showed on Thursday.
In a report, market research group Markit said the seasonally adjusted Markit/CIPS Services Purchasing Managers Index inched down to 57.7 last month from a reading of 58.6 in May. Analysts had expected the index to decline to 58.3 in June.
On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.
Despite the disappointing headline number, June’s survey signaled the sharpest increase in new business volumes for six months.
Commenting on the report, Chris Williamson, Chief Economist at survey compilers Markit said, “Alongside an ongoing surge in construction and the largest quarterly rise in manufacturing output for 20 years, the services PMI confirms that the economy is firing on all cylinders.”
“We expect the economy to grow by 0.8% again in the second quarter, taking GDP to a new all-time high,” he added.
Following the release of that data, the pound added to losses against the U.S. dollar, with GBP/USD shedding 0.15% to trade at 1.7138, compared to 1.7156 ahead of the data.
Meanwhile, European stock markets remained mildly higher. London’s FTSE 100 inched up 0.3%, the DJ Euro Stoxx 50 rose 0.2%, France's CAC 40 tacked on 0.4%, while Germany's DAX added 0.25%.
The pound pared losses against the U.S. dollar on Thursday, but remained under pressure as strong U.S. employment data boosted demand for the greenback and an earlier report on U.K. service sector activity continued to weigh on sterling.
GBP/USD pulled away from 1.7104, the pair's lowest since July 1, to hit 1.7152 during U.S. morning trade, still down 0.08%.
Cable was likely to find support at 1.7096, the low of July 1 and resistance at 1.7175, Wednesday’s high and the most since October 2008.
The dollar strengthened broadly after the U.S. Department of Labor said non-farm payrolls rose by 288,000 last month, easily surpassing expectations for an increase of 212,000. The previous month’s figure was revised up to a gain of 224,000 from a previously reported increase of 217,000.
The unemployment rate ticked down to a four-and-a-half year low of 6.1% from 6.3% in May. Analysts had expected the jobless rate to hold steady at 6.3% last month.
Separately, the Institute of Supply Management said its non-manufacturing purchasing manager's index fell to 56.0 last month from a reading of 56.3 in May. Analysts had expected the index to hold steady at 56.3 in June.
Earlier Thursday, the Markit U.K. services PMI slowed to 57.7 in June from 58.6 in May, and below forecasts of 58.3. It was the lowest reading in three months, but remained well above the 50 level separating growth from contraction.
New business volumes rose at the fastest rate in six months and the sector created jobs at a record pace.
U.K. Services Activity Strong In June Amid Record Job Growth
U.K. service sector activity continued to strengthen in June, albeit at a slower rate than expected, leading to record increase in employment, results of a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, or CIPS, showed Thursday.
The CIPS/Markit services purchasing managers' index, or PMI, came in at 57.7 in June, indicating strong growth though the index marked a three-month low. This was less than the score of 58.3 expected by economists and the three-month low of 58.6 in May.
"The persistent strength of the PMI surveys raises the likelihood of policymakers deciding that a pre-emptive rise in interest rates later this year is warranted, especially giventhe speed at which the labor market is improving, Markit Chief Economist Chris Williamson said.
New orders rose for the eighteenth straight month in June and at the fastest rate in six months. Consequently, outstanding work increased at the strongest rate in four months and staffing levels grew for the eighteenth consecutive month in June and at a survey record pace.
Business confidence remained positive in June on higher demand forecast and hopes of returns on capital investment, though it was at the lowest level since November 2013.
Wages increased and input prices grew on account of increased food, insurance and sub-contractor costs.
Output prices rose for the thirteenth successive month in June, though at a marginal rate as competitive pressures weighed on pricing power.
GBP continues pushing higher against USD, EUR – new long term highs
There’s no rest for the wicked pound. After making the much needed correction on the back of the weak UK services PMI and completing the downwards move with the initial reaction to the excellent US Non-Farm Payrolls, the pair resumed its rises.
At 1.7178, cable is at new multi-year (since 2008) high. And as the euro was unable to recover from the NFP and more importantly from the dovish words of Mario Draghi, EUR/GBP is digging deeper into low ground, reaching 0.7920 and below.
Pound Strengthens Fifth Day Versus Euro on BOE Rate Speculation
The pound advanced to a 21-month high versus the euro, strengthening for a fifth day, as speculation the Bank of England will tighten policy this year contrasted with the European Central Bank’s outlook.
Sterling appreciated to the strongest level since 2008 versus the dollar, set for the longest run of weekly gains in more than 1 1/2 years, as reports this week showed manufacturing and construction growth accelerated in June. The data adds to signs of a strengthening U.K. economy and bolsters the case for the BOE to consider raising interest rates from a record low. The ECB yesterday reiterated its pledge to keep interest rates subdued.
“Over the next six-to-12 months I expect the euro-sterling downtrend to persist,” said Alvin Tan, a foreign-exchange strategist at Societe General SA in London. “Economic and policy divergence between the U.K. and the euro area are very clear. The BOE is set to tighten before the end of the year, in our view.”
The pound appreciated 0.1 percent to 79.26 pence per euro at 10:49 a.m. London time after touching 79.19 pence, the strongest level since September 2012. The U.K. currency has strengthened 1.1 percent this week.
Sterling was little changed at $1.7147 after rising to $1.7180, the most since October 2008. It has risen 0.7 percent in the week, set for the longest run of weekly gains since the period ended Sept. 21, 2012.
The U.S. markets were closed on Friday in observance of the July 4th holiday. The Euro and British Pound saw limited action because of the bank holiday. Crude oil and gold as well as interest rate and commodity markets were completely shut-down.
The week ended with a strong surge in the U.S. Dollar after an almost month-long decline. The Greenback rose after U.S. Non-Farm Payrolls exceeded pre-report estimates. The payrolls report showed the U.S. created 288,000 non-farm jobs in June, beating official expectations of 215,000. The unemployment rate dropped to 6.1%.
The news drop up U.S. interest rates which made the U.S. Dollar a more attractive investment. Although the news was perceived as bullish and the initial reaction positive for the dollar, the rally could be limited especially against the Sterling and gold. The headline number may have beaten expectations, but wage growth remained weak, suggesting that gains in the labor market aren’t filtering through to the broader economy. This may be one reason the Fed refuses to discuss a timetable for its next interest rate hike.
The EUR/USD weakened this week after an attempted breakout to the upside failed. The rally was triggered by a report of steady Euro Zone inflation. With the breakout rally failing to attract any support because of the overall bearish fundamentals affecting the Euro, no one was going to chase this market higher and just like they did down at 1.3502 when they drew the line in the sand, the major players formed a ceiling at 1.3700.
On July 3, the European Central Bank kept its benchmark interest rate at negative 0.1% and President Mario Draghi reiterated his call for lower interest rates and additional stimulus if needed. This helped drop the EUR/USD into the mid-section of the trading range at 1.3606 to 1.3584 where it is likely to finish the week.
The GBP/USD was strong all week on the prospect of the Bank of England moving forward with its plan to hike interest rates in early 2015. The UK economy is working on all cylinders which makes the rate hike decision a little clearer for investors and speculators as opposed to the uneven recovery in the U.S. which still has the Fed talking low rates.
Long British Pound traders pared positions on Thursday following the U.S. jobs report, but this move was short-lived as the Sterling was back pressing a new high for the week on Friday.
August Comex Gold futures also reacted negatively to the U.S. Labor news and to the sharp rise in the U.S. Dollar, but the strong comeback at the end of the day on Thursday suggests investors aren’t sure the Fed is convinced the economy is strong enough to begin raising interest rates. This uncertainty could underpin gold price next week.
With the threat of an attack on refineries in southern Iraq subsiding, August crude oil fell sharply lower for the week. Demand also took a hit because Hurricane Arthur is expected to limit the use of gasoline this week-end. Technically, crude oil looks as if it is headed toward the psychological $100 level.
The GBP/USD pair broke out during the course of the week, breaking above the top of the hammer from the previous week it was sitting on top of the 1.70 level. Because of this, we really like this market for long positions at this point in time, and believe that ultimately we should continue to go much higher. In fact, we believe that this market goes to the 1.75 level given enough time, and that pullbacks going forward should continue to offer “value” as the British pound continues to strengthen based upon the fact that the British economy seems to be coming out of recession. This has the British pound looking strong against both currencies anyway, but this is the bellwether if you will, of Howell the British pounds going to do overall. So it really doesn’t matter which British pound-based pair you are trading, you need to pay attention to this particular market.
On the other side of the Atlantic, the Federal Reserve is starting to see signs of the US economy waking up, and that of course is good for “riskier” assets. The British pound is often thought of as such, although we see that as a bit of a farce. Nonetheless, we know that correlation is that good economic news in general tends to push this pair higher, so why fight it?
We believe that this market will probably go higher than the 1.75 level given enough time, because quite frankly the 1.70 area is more significant on the longer-term chart. However, we recognize that area does in fact have some significance, so more than likely we have just entered a “buy and hold” type of move but recognize that there will be challenges above. Markets do not move in one direction forever, but this is in fact one that should continue to be very positive for a very long time in our opinion. If you are not trading this particular pair, again, pay attention to this market simply to see whether or not you can buy the British pound against other currencies.
The pound remained lower against the U.S. dollar in quiet trade on Monday, but losses were expected to be limited as expectations for the Bank of England to raise interest rates before the end of the year continued to support.
GBP/USD hit 1.7108 during U.S. morning trade, the pair's lowest since July 3; the pair subsequently consolidated at 1.7123, shedding 0.21%.
Cable was likely to find support at 1.7096, the low of July 1 and resistance at 1.7180, the high of July 4 and a six-year high.
Sterling has strengthened broadly since the start of this year, gaining more than 15% against the dollar amid expectations that the deepening U.K. recovery will prompt the BoE to raise rates before the end of the year.
Business surveys last week indicated that the U.K. economy continued to grow at a strong pace in the second quarter, after the economy expanded at the fastest annual rate since 2007 in the first three months of 2014.
Meanwhile, the dollar remained supported after data late last week showed that the U.S. economy added 288,000 jobs last month, well above expectations for jobs growth of 212,000, while the unemployment rate ticked down to 6.1%, the lowest in almost six years.
The strong data sparked speculation that the Federal Reserve could bring forward its timetable for raising interest rates.
The pound was lower against the euro, with EUR/GBP rising 0.24% to 0.7941.
The euro remained under pressure after European Central Bank Vice President Benoit Coeure said Sunday that rates will remain on hold for an extended period to ensure monetary stability in the euro zone.
The ECB left all rates on hold at its meeting last Thursday, after cutting rates to record lows in June in a bid to stave off the threat of persistently low inflation in the region.
Data on Monday showed that German industrial output unexpectedly dropped 1.8% in May, fuelling concerns over the outlook for the broader euro zone economy.
The pound fell to session lows against the dollar and the euro on Tuesday after data showed that manufacturing production in the U.K. declined at the fastest rate in 16 months in May.
GBP/USD was down 0.23% to 1.7087 from around 1.7141 ahead of the data.
Cable was likely to find support at 1.7050 and resistance at 1.7146, the session high.
The Office for National Statistics said manufacturing production fell 1.3% in May, the largest decline since January 2013, confounding expectations for a gain of 0.4%.
Overall industrial production was down 0.7%, the biggest fall since August 2013, bringing the annual rate to 2.3%.
The data indicated that the economic recovery in the U.K. may not be a solid as hoped.
Sterling has rallied to almost six-year highs against the dollar and two year highs against the euro in recent sessions amid expectations that signs of a deepening economic recovery would prompt the Bank of England to raise interest rates before the end of this year.
Elsewhere, sterling was lower against the euro, with EUR/GBP rising 0.14% to 0.7955, recovering from Monday’s lows of 0.7914, the lowest since September 2012.
Chambers of commerce say interest rate rise would derail recovery
BCC says signs of weakness in the second quarter suggest that UK firms not yet ready for rate rise
British businesses are calling on the Bank of England not to rush into an interest rate rise, warning that the recovery is not yet secure as a closely watched report on Tuesday shows a slowdown in exports.
The British Chambers of Commerce (BCC) says its latest quarterly poll of thousands of companies shows their performance slipped on key measures such as overseas sales and investment during the last three months when compared with a strong start to 2014.
The business group said its findings still pointed to a solid pace of growth for the UK, but were a reminder that the recovery was not entrenched and rebalancing the economy still had a way to run.
It warned against an early move to raise borrowing costs after recent comments from Bank of England policymakers have raised expectations that a hike could come before the end of the year.
"These results reinforce the case against the Bank of England making any hasty decisions on raising interest rates in the very short-term," said BCC director general John Longworth.
"By driving up the cost of credit for fast-growing firms, many of whom do not sit on the same healthy cash piles as their more established counterparts, early rate rises may mean more limited growth ambitions among the very firms we are counting on to drive the recovery.
"We must nurture the business confidence we are seeing at present by giving firms the security of working in a low interest rate environment for the foreseeable future – with eventual rises both moderate and predictable."
The survey of around 7,000 companies across manufacturing and services found that on the whole businesses reported conditions above long-run trends. Its balances, which represent the number of firms reporting an improvement from those reporting a deterioration in a particular area such as orders or hiring, were mostly stronger than their 2007 pre-recession levels.
But after an unusually strong first quarter, all the export and investment balances fell in the second quarter.
There was a mixed picture for jobs, with the balance deteriorating somewhat for manufacturing although still showing employment rising in the sector. The employment expectations balance also dropped.
For the much larger services sector, the jobs balance for the past three months rose but the employment expectations balance slipped back slightly.
The BCC said all the survey's confidence balances remained "relatively strong" but intentions to raise prices eased and concerns around interest rate rises rose.
Interest rates have been at a record low 0.5% for more than five years and while no economists expect any action at this week's meeting of the monetary policy committee (MPC), Bank governor Mark Carney has said the decision about when to tighten policy is "becoming more balanced".
Pound Erases Decline as Bulls Disregard Output Slump
The pound erased a decline versus the euro as investors bet an unexpected slump in U.K. manufacturing won’t derail Britain’s economic recovery.
Sterling was within 0.4 percent of its strongest level in almost two years against the 18-nation shared currency before the National Institute of Economic and Social Research publishes U.K. growth estimates later today. Britain’s government bonds advanced as the Debt Management Office held its first auction in more than two years of securities due in 2060.
“It’s an unfortunate blip,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, said of the production data. “I would be surprised if it’s a definitive trend change. We will see a continued trend lower in euro-sterling as we head through the year.”
The pound was little changed at 79.40 pence per euro at 12:55 p.m. London time after weakening as much as 0.2 percent. It touched 79.15 pence yesterday, the strongest level since September 2012. The U.K. currency was at $1.7120 after climbing to $1.7180 on July 4, the highest since 2008.
Sterling earlier declined as much as 0.3 percent versus the dollar after a report showed factory output fell 1.3 percent in May from the previous month, the biggest drop since January 2013. The median forecast of 25 economists in a Bloomberg News survey was for a 0.4 percent increase.
The U.K. economy is estimated to expand at a faster pace in the second quarter, the National Institute of Economic and Social Research said late Tuesday.
Gross domestic product is estimated to expand 0.9 percent in the second quarter, faster than the 0.8 percent growth seen in the first quarter. The institute projected 2.9 percent growth in 2014 and 2.4 percent in 2015.
The think tank said the month-on-month fall in industrial production would weigh only marginally on the wider economy. Moreover, it expects manufacturing to rebound in June.
The Office for National Statistics is slated to publish preliminary GDP data for the second quarter on July 25.