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Purchasing Managers’ Indices (PMI) rule the day

Published: Wednesday 01 August 2018

  • Sterling balanced ahead of potential Bank of England (BoE) rate hike
  • US Federal Reserve rates on hold but the statement is the key
​​By David Johnson

Welcome to August. Good to have you here. And nope, I don’t know where the other seven months of 2018 went either.
The Chinese economy is slowing according to lower purchasing managers indices. That was seemingly attributable to lower domestic demand but the situation may well continue if the US  goes ahead with plans to impose 25% tariffs on $200 billion worth of Chinese imports. China sets the price of the Yuan against the US Dollar each day and this morning’s fix was the lowest since May 2017. A weaker Yuan will offset some of the damage done by any tariffs and make Chinese goods more attractive to other export markets.
Mundane manufacturing results take the lead this morning
Manufacturing Purchasing Managers Indices (PMIs) are the theme of the morning. The Eurozone figures were released first and show subdued growth for the Eurozone manufacturers, in line with forecasts at 55.1 and only showing a small uptick from the previous month’s 18-month low of 54.9. However, results above the 50 mark still denote growth, albeit at a slower pace than the Eurozone has seen in recent months.
The UK Manufacturing PMI results disappointed at 54.0 for July, as new orders and output growth slowed, but, again, the industry is still in growth mode, just not at the fast pace we have seen before. Political and economic uncertainty is undoubtedly having an effect on new orders and business across all key business sectors, with the usually buoyant manufacturing sector feeling the effects.
Sterling could still strengthen before Bank of England announcements
Overnight, we heard that UK house prices picked up a little in July and the British Retail Consortium reported that UK shop prices fell by 0.3% on the year to July. That’s the smallest decline since December 2017 and may mark the turning point for UK retail pricing – and that would start to put pressure on the Bank of England (BoE) for their interest rates. There are some who believe the BoE will raise the base rate from 0.5% to 0.75% tomorrow and Sterling is likely to strengthen ahead of that announcement.
Commodity pricing and trade war fears holding back US Dollar
This afternoon brings the US PMI, along with some car industry data and construction spending. We also have an interest rate decision from the Federal Reserve. No change is expected from the Fed, but we must be nearing another rate hike and/or a reduction in their multi-trillion dollar QE budget. We will watch that one with interest. The USD has the potential to strengthen but is being held back by fears over trade wars and an overall improvement in commodity prices.
On this day in history…
And today is a momentous day in history, but rarely mentioned. On this day in 1834, slavery was abolished in all parts of the British Empire as the Slavery Abolition Act 1833 came into force. It is worth celebrating, but it’s sad to note that modern day slavery is still a factor.
To the person who stole my copy of Microsoft Office, I will find you… You have my Word…

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 09:00 EU: Final Manufacturing Purchasing Managers' Index 55.1 55.1
GBP 09:30 UK: Manufacturing Puchasing Managers' Index 54.5 54.2
USD 13:15 US: ADP Non-Farm Employment Change 177k 186k
CAD 14:30 Canada: Manufacturing Purchasing Managers' Index 57.1 57.1
USD 14:45 US: Final Manufacturing Purchasing Managers' Index 55.5 55.5
USD 15:00 US: ISM Manufacturing Purchasing Manager's Index 60.2 59.4
USD 19:00 Federal Reserve Official Funds Rate 2.00% 2.00%
USD 19:00 Federal Open Market Committee Statement    

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