What’s been happening?

Pound Sterling – UK Markets 

The IHS Markit UK manufacturing PMI inched up to 54.4 in June from a downward revised 54.3 in May and beating economists’ expectation of 54.0. However, June saw the weakest quarter for the British manufacturing PMI in 18 months, with IHS Markit stating that prospects for the sector looked doubtful. Business optimism also declined to its lowest level this year as factory bosses fretted about increasing cost pressures, possible future trade tariffs and Britain’s departure from the European Union, which is now only nine months away. 

The UK government was reported to have come up with a new proposal for handling customs with the EU after Brexit. So far, Prime Minister May’s advisers have come up with two customs exit options, neither of which have the full support of her party, and a third model is now believed to have been formulated, though no details are yet available. Tensions are building within the government ahead of a key cabinet meeting to decide Brexit policy at the end of this week, limiting Sterling from making significant gains against other major currencies. 

US Dollar – US Markets

The US manufacturing PMI accelerated in June with a 55.4 reading compared to a flash reading of 54.6 previously, however, there was still a net monthly decline. A strong economy and import traffic were causing holdups in the supply chain, which is likely to weigh on production in the months ahead. 

The Institute for Supply Management (ISM) recorded an increase in national factory activity, with a reading of 60.2 in June from 58.7 the previous month while new orders and production components remained comfortably above 60.0. There was, however, an increase in delivery times and a slowed down in the rate of price increases. The ISM noted that demand remained “robust, but the nation’s employment resources and supply chains continue to struggle.” The Dollar index edged above 95.0 upon this data yesterday.  

Euro – European Markets

The Eurozone IHS Markit manufacturing PMI slowed in June to a one and a half year low of 54.9 from 55.5 in May and was slightly below a preliminary estimate of 55.0. Manufacturing activity saw a pick up in Italy from its previously moderate level, while losses were recorded in Germany and France. "The biggest concern is the extent to which export order book growth has cooled since the start of the year, and could soon go into decline," said Chris Williamson, a chief business economist at IHS Markit.

Unemployment in the Eurozone fell in May as joblessness continued slowing to its pre-crisis levels, according to the Eurostat data released yesterday. The jobless rate in the single currency area fell to a nine-year low of 8.4% in May and down from 8.5% the previous month. This was better than an estimate by financial services provider FactSet, who were expecting 8.5%. The Euro gained slightly against both the US Dollar and the Pound upon the data. 

What’s coming up? 

UK: UK Markets will be focusing on continuing political developments ahead of a key cabinet meeting this Friday, where a finalised Brexit policy should be presented. The Bank of England’s Governor Carney will be speaking on Thursday, where the UK’s monetary policy is likely to be discussed, as the BoE’s August meeting approaches. 

US: Markets will be looking at the US month on month Factory Orders for the month of May out this afternoon, followed by a day of no data on Wednesday as US markets close during the US Independence Day. 

EU: The Euro markets will be looking at the June Eurozone Markit Services PMI reading out tomorrow.