Sterling Rallies Although UK Manufacturing Slows
The Pound has been stronger to the US Dollar, in spite of today’s disappointing manufacturing release, showing UK factory output for January fell to a seven-month low. The IHS Markit Manufacturing Purchasing Managers Index (PMI) had been confidently expected to rise to 56.5, but it dropped to a reading of 55.3 as output and new orders decreased. There was a rise in export orders, however, slowing growth and rising prices contributed to the UK failing to keep pace with Europe’s manufacturing surge.
Manufacturing data released from across Europe has been stronger than expected, according to today’s IHS Markit manufacturing PMIs. A Eurozone boom in manufacturing included output and new orders rising to near record rates. Italy had its largest manufacturing growth in seven years, Greece’s output hit a ten-year high and the Netherlands factory growth also hit a record high rate of expansion. The US Dollar briefly rose following the US Federal Reserve stating it expects inflation to rise this year, before slipping lower, again.
Pound Sterling – UK Markets
The Pound has rallied against the US Dollar, with the exchange rate higher at $1.42. Sterling also made gains against the Euro, trading higher at €1.14.
Today’s IHS Markit Manufacturing PMI for January shows that UK factories are still expanding, but at a slower rate than had been anticipated. Manufacturing in the UK dropped for the second consecutive month, but output still remains above the long-term average. IHS Markit noted: “The trend in demand will need to strengthen in the near term to prevent further growth momentum being lost in the coming months.”
UK housing prices rose by more than expected, according to today’s release by mortgage lender Nationwide. January prices were up by an annual rate of 3.2%, surpassing an expected rise of 2.5% after December prices rose by 2.6%. This marks the largest increase since March 2017, although it falls short of the average growth of 5% that was seen prior to the Brexit referendum. January’s month-on-month prices increased at the same0.6% rate that was seen in December. Nationwide said the price growth “is a little surprising” given that: “there are few signs of an imminent pickup” of property prices.
Prime minister Theresa May has said that EU citizens who come to the UK during the post-Brexit transition period will have a difference status than those who arrived earlier. This is in opposition to Brussels’ offer of a “status quo” period until December 2020, which would include free movement and citizen’s rights for Europeans who settle in the UK during the transition. A new paper in the leaked government impact document, found that the cost of stricter EU immigration systems would be far greater than would be offset by the projected 0.2% boost from a US trade deal.
US Dollar – US Markets
The US Dollar has slipped against the Euro, exchanging €0.80. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, fell slightly down to 89.02.
The Federal Reserve (Fed) was not expected to announce an interest rate change, since the meeting was the last one for outgoing Fed chair Janet Yellen, as the new chair Jerome Powell will be sworn into office on 5 February. The Fed will leave the benchmark federal funds rate in the range of 1.25%-1.5%, signalling that it is on course to raise the rate at the next meeting in March, on expectation that inflation will “move up this year and stabilise around the FOMC’s 2% objective over the medium term.”
The US added more private sector jobs in January than had been expected, according to yesterday’s ADP Employment Change release. The addition of 23,400 new jobs beat estimates of a gain of 18,500 new positions, although it was slightly lower than the previous figure of 24,200. This is not an indication that the release of Non-Farm Payrolls tomorrow will also be stronger, since last month’s ADP was higher too, although the Non-Farm Payrolls were lower.
The USD Chicago Purchasing Managers’ Index showed better than expected manufacturing business conditions. This is positive news, since the index is widely used as an indicator of the overall economic across the US. The reading of 65.7 indicates more robust growth than the expected reading of 64.1, although but are lower than the previous reading of 67.8. Another manufacturing indicator, the ISM Manufacturing Purchasing Managers Index, is due out later today.
The National Association of Realtors, report on pending home sales show that sales of previously owned home are expanding faster than the expected figure of 0.4%, coming in higher at 0.5%. This December figure was an improvement over November’s increase of 0.3%, marking a third straight month of gains. The year-on-year figures fell by 1.8%, far more than the 0.2% decline that was forecast. Pending home contracts indicate the near-term future of the housing market since they become sales in one to two months.
Euro – European Markets
The Euro has pushed back against the US Dollar, with the exchange rate set higher at $1.24.
The Eurozone’s IHS Markit manufacturing PMI came in at the steady, robust figure of 59.6, as had been expected. Across Europe, many PMIs reflected booming manufacturing growth, especially in the Netherlands where the figure of 62.5 marked a record high in factory output. At 59.0, Italy sailed past the expected slight increase to 57.5. Greece appears to be making a strong economic recovery with a January PMI of 55.2 following December’s reading of 53.1.
The expansion in factory output increased the jobs in the sector, according to Chris Williamson, IHS Markit’s chief business economist. Williamson noted that Eurozone employment, “showed one of the largest gains yet recorded by the survey as firms expanded capacity in line with rising demand.”
The Eurozone reading would have been higher had there not been several countries with lower manufacturing output, such as Germany, which would typically be leading manufacturing growth. Germany’s PMI missed expectations of a slight expansion as factory output slowed to a three-month low of 61.1 from 61.2. Spain’s figure of 55.2 marked a four-month low. Austria and Ireland also saw a three-month low slump in factory output.
Other Currencies – Highlights
Sterling is stronger to the Australian Dollar, with the exchange rate up to 1.77 AUD. After Sydney houses prices rose by 75% from February 2012, house prices have continued a trend of falling. January house prices were down by 0.9% in Sydney, and averaged 0.3% lower across other Australian capital cities according to today’s release by CoreLogic.
The Pound has risen firmly against the New Zealand Dollar, exchanging higher at 1.93 NZD. New Zealand’s finance minister, Grant Robertson hailed Budget 2018 “as a turning point” for the country, announcing it will be delivered on 17 May. The policies are intended to make New Zealand “more productive, sustainable and inclusive,” he said.
The Pound is making gains against the Swiss Franc, exchanging at 1.32CHF. Switzerland’s January SECO consumer confidence indicator came in very strongly at 5, which far overshot the expected figure of 2. This continues the positive momentum that has rising since 2015.