UK Factory Growth Remains Strong
Sterling remained unaffected by the good news coming from the UK’s manufacturing sector. According to a IHS Markit survey, the sector grew further in May, benefitting from domestic demand and spreading optimism to investors, despite Brexit uncertainties. Economists suggest that robust numbers regarding the manufacturing sector such as April’s and May’s, make the Q1 economy slowdown seem “potentially transitory.”
In the Eurozone, the excellent manufacturing sector data report confirmed that the economy in the continent is back on track. The Eurozone’s factories created more jobs in May than at any time in the last twenty years. Analysts believe that moving towards investing in expansion rather than cutting costs, is the most sustainable action.
Pound Sterling – UK Markets
On Thursday, the British Pound remained relatively stable against the Euro trading at €1.14. The British currency lost 0.12% in value against its US counterpart, with the exchange rate set at $1.28.
Nationwide reported that house prices fell by 0.2% in May, which is the third monthly fall in a row. This fact is a clear indicator that the British housing market is losing momentum, especially because this kind of fall hasn’t happened since the days of the financial crisis back in 2009. Nationwide’s economists suggest that, on annual basis, prices are 2.1% higher than a year ago, signalling that the house demand is retreating.
A survey from IHS Markit revealed that the British manufacturing sector is holding up well, despite Brexit challenges. Jobs were created at a 35-month high rate, while a solid increase in new exports was observed, thanks to the weak Sterling. However, ING’s report adds that, although the manufacturing sector performed well, it is still just a small part of the UK’s economy following surrounding services and retail.
US Dollar – US Markets
The US Dollar retained its value against the Euro, trading at €0.88. Weak data regarding the house market didn’t seem to affect the value of the currency.
The National Association of Realtors reported that contracts to buy previously owned US homes fell for a second straight month in April amid a supply squeeze. However, JP Morgan’s analysts believe that the housing recovery will continue over time based on favourable fundamentals in the market, despite some weakening in the number of home sales lately.
The US House Intelligence Committee issued subpoenas to the fired national security advisor, Michael Flynn, and president Trump’s personal lawyer, Michael Cohen, as part of the probe into Russian interference during the 2016 presidential election.
Euro – European Markets
The Euro remained steady against the British Pound with the exchange rate between them set at £0.87. On the contrary, the single market currency lost a bit in value against the US Dollar, trading at €1.12.
The release of upbeat economic data regarding the Eurozone continued on Thursday. According to those, the Eurozone’s factory output surged in the fastest pace in the last 6 years. Germany’s manufacturing sector led the way growing at a rate that constitutes a 73-month high. Spanish factories are hiring new staff at the fastest rate since 1998, reporting also a rise in new orders, an encouraging fact for a country that struggles in the financial sector.
Analysts at IHS Markit suggest that the upturn in the Eurozone’s economy is accompanied by strong jobs growth, making it look more and more robust as months are passing. They stress that such an increase in production and hiring employees has not been seen ever in the previous 20 years.
Other Currencies – Highlights
Sterling remained stable against the Australian Dollar trading at 1.73 AUD. Westpac’s research analysts said in a report that retail sales came in better than expected for April. More specifically, total retail sales rose 1% versus expectations of a 0.3% gain. This is the strongest monthly result since September 2014. Attention is shifting towards Wednesday’s announcement of the GDP figures for the first quarter of the year.
The Pound lost a bit of ground against the New Zealand Dollar with the exchange rate between the two currencies set at 1.81 NZD. A Reserve Bank of New Zealand’s (RBNZ) report released yesterday suggested that the housing market could collapse if mortgage rates rise to 7%. The RBNZ stress-tested the borrowers’ ability to cope with mortgage rates at 7%. The test’s result showed that 4% of all borrowers would be put under severe stress for not being able to pay their day to day bills.