Sterling Slows Despite UK Manufacturing Surge
The Pound fell against both the US Dollar and the Euro, despite the fact that the UK’s manufacturing sector in November recorded a strong expansion. IHS Markit published the UK’s manufacturing PMI which came in at 58.2, beating all expectations. Theresa May is facing pressure by the Democratic Unionist Party (DUP), whose officials threatened to reconsider their party’s stance in the government, if the prime minister compromises over the Irish border in the negotiations with the European Union.
Media reports suggested that US diplomats have dropped plans for Donald Trump’s visit to London in January. Trump was to formally open the new US embassy in the British capital, but the feud between the President and Theresa May seems to have put this trip on ice. In the US, a Senate vote on the tax reform bill is expected today. OPEC and other major producers decided to extend oil output curbs until the end of the next year, hiking prices.
Pound Sterling – UK Markets
Today, the Pound fell against the US Dollar with the exchange rate set just under the $1.35 mark. Sterling also dipped against the Euro with the exchange rate set at €1.13. However, the British economy sent a strong signal with a positive surprise that made investors more optimistic, despite the stalled Brexit negotiations.
IHS Markit published November’s manufacturing PMI sector data for the UK. The Manufacturing PMI reading came in at 58.2, beating analysts’ expectations. Economists polled by Reuters had been expecting a 56.5 reading. November’s figure is the highest recorded since 2013. The surprising result was attributed to a surge in demand for UK investment goods, such as plant and machinery. New orders for these products, during November, rose to the highest level in the last twenty years.
Economists polled by Reuters suggested that the most likely outcome of Brexit negotiations is a free trade deal between the UK and the European Union. The chances of a disorderly Brexit after March 2019 fell to 25%, 5% less than chances given in a poll conducted in October. The second most likely outcome, according to economists, is that Britain will leave EU without a trade deal and trade with the countries of the continent under World Trade Organisation (WTO) rules.
US Dollar – US Markets
The US Dollar fell against the Euro with the exchange rate set at €0.83. The US Dollar Index (DXY), which measures the value of the Dollar against six major currencies, also dropped, coming in at 92.85. In the afternoon, IHS Markit and the Institute for Supply Management (ISM) will publish their manufacturing PMIs for November.
Senate Republicans delayed voting on the tax reform bill when the Senate parliamentarian ruled that a fiscal “trigger”, planned to be included in the new bill, wouldn’t comply with Senate rules. Three Republican senators had said that they won’t vote in favour of the bill unless a mechanism, which increased taxes if revenue target hadn’t been met, was to be included.
The Joint Committee on Taxation, which is a nonpartisan fiscal referee, stressed in its report that the tax reform would add $1tn to the national deficit, despite the fact that the US economic growth was taken into consideration in the calculations. Mitch McConnell, who is the Senate’s majority leader, said that the vote on the tax reform bill will take place on Friday morning. Republicans enjoy a slim majority in the Senate and can afford to lose the support of only two voters.
Euro – European Markets
The Euro edged up against the US Dollar with the exchange rate set at $1.19. IHS Markit released November’s Manufacturing PMIs for some European economies and the Eurozone as a whole.
Markit’s survey showed that the Eurozone’s manufacturing activity increased in November, a bit more than expected by analysts. The PMI reading which is the best in the last seventeen years. According to Markit, the Eurozone experienced the steepest increase in employment since 1997. The upturn was fuelled by expansions in production and new orders as well as a record growth recorded in new exports.
Germany’s manufacturing PMI came in at 62.5, in line with expectations. This is the highest reading since February 2011. The survey showed that new orders grew at the fastest pace of the last seven years. The French manufacturing sector expanded more than expected with the PMI figure coming in at 57.7. Markit analysts noted that the rate of job creation was the second best in the last seventeen years.
Other Currencies – Highlights
Sterling dropped against the Australian Dollar, trading at 1.77 AUD. Westpac analysts suggest that the Australian GDP in the third quarter of the year grew by 0.8%. They believe that the strong labour market is a clear indicator of the improvement in economic conditions. Economists at NAB said in their report that they expect a 0.7% GDP growth in the third quarter and stress the divergence between consumer and business spending which remains despite the growth in the number of jobs. Data regarding the Australian GDP are due to be published next Wednesday.
The Pound dipped against the New Zealand Dollar, trading at 1.98 NZD. House sales remain sluggish while listings of homes for sale are surging, according to a realestate.co.nz survey. The report, coming from one of New Zealand’s property websites, said that the reluctance of buyers could create a surplus of unsold properties in 2018. The report noted that there are now twenty weeks of inventory at current sales rate, which is the highest since early 2015.
Sterling lost ground against the Japanese Yen, trading at 152.28. Core inflation increased by 0.8% in October, on an annualized basis, in line with expectations. The unemployment rate in Japan remained stable at 2.8%.