UK construction sector sees fastest growth since 1997
The UK construction sector Purchasing Managers Index posted year-on-year growth in June that was the fastest since 1997. Sterling spiked on that news but didn’t follow through into a proper rally. Why? Well, construction accounted for just 7% of GDP, so the rise is a small component of the overall economy. Also, June 2020 was the eye of the storm for lockdown, so the comparative improvement is a tad flattering.
Also, the service sector PMI showed a slowdown, and raw materials, as every builder and carpenter will tell you, have gone through the roof. So optimism is good but there are still headwinds.
Nonetheless, the Pound did get to EUR 1.1720 briefly and to USD 1.3815. Sterling has slipped back a bit from those peaks but remains relatively well supported. We have the Halifax house price index today but not a lot else from blighty. So Sterling is likely to range trade for the day.
Commodity related currencies cede ground
The Pound also rebounded against the Aussie and Kiwi Dollar though. GBPAUD rose from AUD 1.8260 to AUD 1.8430 on the day before settling just above AUD 1.84. GBPNZD followed a similar pattern, racing from a low of NZD 1.9530 to NZD 1.9715 before easing to NZD 1.9650 this morning. We even saw some life in the GBPCAD rate, which has been a zombie for the last few weeks. That whizzed from CAD 1.7090 to CAD 1.7245 and is still around CAD 1.72 this morning. It can’t quite crack the 1.7250 level and hasn’t done so since April. This weakness in the commodity-exporting countries’ currencies is very clear.
German industrial production contracts unexpectedly
Sterling may make a little ground against the Euro today after German industrial production contracted by 0.3% in May. It is, admittedly only a small drop but the markets were expecting half a percentage point of growth. So the variation is a little unsettling for the largest economy with the largest industrial sector in the Eurozone. We have some economic projections for the Eurozone today but nothing else of any consequence.
Federal Reserve minutes to drive USD direction
The big news of the afternoon will be the release of the minutes from the last Federal Reserve Open Market Committee meeting. As we know, the FOMC left the base rate on hold but improving employment sporadic growth in the US is causing talk of raising the base rate and cutting back on liquidity. The USD is vulnerable to such talk. So the evening, (UK time) will be a lively one.
Of course, hardly anyone in the UK will be paying attention. There is a football match to watch, hours of nonsense to be talked about by commentators and beer to be consumed. The whole of Wemb-er-ley and Eng-er-land will be cheering on the men in white or at least the three lions on their shirts. We’ll be hoping they can go all the way. I am sure the players do too. They will each earn £461,000 if they beat Italy on Sunday. Oh, plus the sponsorship deals, appearance fees, and bragging rights. If they’re not enough incentives, I have no idea what is.
And it is hard to believe that it was 16 years ago to the day that terrorists bombed tubes and a bus in London, mindlessly murdering 52 innocents and maiming more than 700 more. Many are still living with the consequences and our hearts go out to them on this painful anniversary.