UK Construction Stalls on Brexit Concerns
Sterling slipped against the US Dollar and the Euro following the news that the UK’s construction sector has slowed down sharply in January. Today’s IHS Markit Construction PMI reveals growth in the troubled building sector has contracted to levels near stagnation. Political and economic uncertainty due to Brexit, as well as the collapse of Carillion, is blamed for the much larger than unexpected drop in building activity. The building sector is still experiencing the impact of Carillion’s liquidation, as nearly 400 of the firm’s workers were made redundant today.
The US Dollar is in the spotlight today, as the US Labour Department’s release of the Non-Farm Payrolls (NFP) is due out this afternoon. In January, analysts expect that 180,000 new jobs will have been created, rising from the 148,000 positions added in December. The Dollar is likely to fall slightly lower if the NFP release does not show a steady annual increase in average wages up from 2.5% to 2.6%.
Pound Sterling – UK Markets
The Pound has fallen against the US Dollar, with the exchange rate at $1.42. Sterling also slipped against the Euro, trading lower at €1.13.
Today’s UK Construction Purchasing Managers Index was “a difficult start to 2018 for the construction sector,” noted IHS Markit economist Sam Teague. Business activity growth fell to a four-month low, as new orders declined and job creation plummeted to an 18-month low. After December’s reading of 52.2, January had been expected to show moderate growth of 52.0. The decline to 50.2 puts construction very near to the stagnation level that a reading of 50.0 would indicate. Markit expects February’s PMI to slip further although businesses anticipate an improvement late in the year if Brexit negotiations advance well.
The consequences of Carillion’s collapse last month will continue to ripple across the construction sector for months affecting small construction companies and suppliers, according to the Construction Projects Association. The association points out that the construction PMI, does not include the more recent effect of work stopping on construction sites in the second half of the month. The Official Receiver reported today that they saved 919 Carillion jobs, and cut 377 positions.
The Office for National Statistics report that median household net wealth has been steadily rising, according to the results of their wealth and assets survey, which doesn’t take inflation into account. Average household net wealth was £225,100 in the period from 2012 to 2014, rising to £259,000 during the period from 2014 to 2016. Total British household net wealth was £11.1trillion in 2012 to 2014 climbing by 15% to £12.8 trillion in 2014 to 2016.
The ONS survey showed that from 2014 to 2016, the wealth held by the top 10% of households, was around five times more than that of the combined wealth of households on the bottom half. Those in the top 1% owned assets worth at least £3.2million. Meanwhile, those in the bottom 10%, had £14,100 or less in assets.
US Dollar – US Markets
The US Dollar has picked up a little ground against the Euro, exchanging €0.80. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies is up, at 88.86.
Later today, the Non-Farm Payrolls may give the US Dollar a boost, or weaken the currency further. The Dollar has been sluggish this week, in spite of the near certainty of a March interest rate hike. This weakness, stems from uncertainty about the Federal Reserve’s policies under new chair Jerome Powell, and a lack of clarity regarding president Trump’s new trade plans. With unemployment holding steady at 4.1%, investors will scrutinise today’s wage growth figures, to determine whether the tightening jobs market is pushing wages higher. Economists at Barclays have warned that raising rates and cutting taxes, increases the risk of tightening credit conditions and rising inflation that could prompt an economic “hard landing.”
US manufacturing was featured yesterday with the IHS Markit Manufacturing PMI and the Institute for Supply Management (ISM) Manufacturing PMI both released. Factory output slowed down to 59.1 from December’s robust figure of 59.3, according to the ISM Manufacturing PMI. The decrease was far less than the expected fall to a reading of 58.8. This data was reinforced by the IHS Markit figure of 55.5 which held steady from the previous data, surpassing expectations of output falling.
The Institute for Supply Management (ISM) Prices Paid, shot past expectation of a decrease in spending in January. The reading of 72.7, indicates business sentiment regarding future inflation is very strong. The increase from a figure of 68.3 in December marked the highest reading since May 2011. Analysts at ING have concluded that recent tax cuts have been responsible for lifting business sentiment, noting the sector is creating jobs in “significant numbers.”
Euro – European Markets
The Euro is slightly weaker against the US Dollar, with the exchange rate set at $1.24.
The Eurozone Producer Price Index (PPI), shows that prices rose by less than had been expected in December, due to a slowdown in the rise of energy prices. PPI measures changes in the prices that domestic factories paid for goods and services, from the seller’s perspective, giving an early reading of rising inflation. The data from Eurostat showed that prices rose by only 0.2% month-on-month for December, down from an increase of 0.6% in November. The annual prices were also lower than had been expected, slowing from 2.8% to 2.2% which will likely keep prices lower for consumers.
Deutsche Bank has been fined £49million by US regulators, for attempting to manipulate benchmark rates for derivatives and other financial instruments. The Commodities Futures Trading Commission investigation, determined that the bank’s traders were aware that they were breaking the law when they sought to manipulate rates from 2007 until May 2017. In addition to the fine, the bank has also reported a loss of €497million for 2017, which is the third consecutive annual loss for Deutsche Bank.
Spain’s struggle toward economic recovery is underlined by today’s unemployment survey which reveal that unemployed workers figures increased up to 63,700 in December. This was much larger than the expected Unemployment Change figure of 50,300. Spain’s unemployment rate of 16.4% is the second highest in the Eurozone which had an average jobless rate of 7.3% in December. Greece, with unemployment at 20.7% in October 2017, has the highest jobless rate in the Eurozone.
Other Currencies – Highlights
Sterling is retaining recent gains made against the Australian Dollar, with the exchange rate higher at 1.78 AUD. Australia’s year-on-year Producer Price Index was expected to fall to 1.2%, however, it jumped to 1.7%. The
release by the Australian Bureau of Statistics also showed that fourth quarter prices spiked from 0.2% to 0.6% which was caused by a rise in prices received for petroleum refining and manufacturing.
The Pound has risen firmly against the New Zealand Dollar, exchanging higher at 1.93 NZD. New Zealand’s Building Permits plummeted by 9.6% in December. Over the course of 2017, however, residential building permits rose to a 13-year high due to a trend towards building apartments rather than stand-alone houses.
The Pound is holding steady against the Canadian Dollar with the exchange rate at 1.75 CAD. Canada’s GDP grew at its fastest pace in six months with half of the gains coming from manufacturing. Canada’s strong Manufacturing PMI figure of 55.9 for January is evidence of growth which is at its quickest expansion since 2014.