Good morning,
UK manufacturing shows Q1’s weakness should prove transitory
The UK’s manufacturing sector grew once more in May, but at a slower rate than April. Nonetheless, the release still suggests that Q1 could have been a modest slowdown in economic activity, but not a protracted slump. Export orders were again on the front foot, but slowed markedly from the levels seen earlier this year – not the post-Brexit boom many were hoping for with a currency that’s over 10% weaker today than it was twelve months ago. Nonetheless, manufacturing remains a small (and shrinking) sector of the UK economy, but its political value as football to be kicked by those on the right and the left means it’ll stay in the headlines for quite some time yet. Construction numbers due today will prove informative but will provide the market with little direction while campaigning still steals the limelight until services figures are released on Monday.
As such, the pound was relatively unreactive to the PMI release (or anything else) yesterday.
ADP Employment Change jumps above expectations
Yesterday’s private sector ADP jobs number leapt above expectations and the Fed will be watching today’s nonfarm payrolls for evidence of the same. With the unemployment rate still probing record lows and rolling average job gains still so high, the Fed are under pressure to raise rates as soon as this month. The market’s currently pricing in an over 90% chance of a rate hike in 12 days, and the dollar should rise further if these beliefs solidify.
Trump says au revoir to the Paris Accord
The US withdrawal from the United Nation’s flagship climate change policy has disturbed many. Reviews range from “a grotesque abdication of leadership” to putting “the forgotten men and women of America first”. It certainly signals a departure from the previous presidents who’ve believed transnational action is a solution to many of the common problems the world faces. In response, both the EU and China (the world’s second and third largest economies) as well as a number of US states (namely, Washington, New York and California) have doubled down on their commitment to curbing emissions.
There’s reason to believe that Trump’s decision yesterday won’t be that far-reaching. Despite US companies (think Apple, ExxonMobil, General Motors et al) suddenly being allowed to emit as much carbon as they’d like, it’s highly unlikely foreign governments, their shareholders and – ultimately – their customers will be as accepting. So don’t expect your iPhone to feature an exhaust pipe anytime soon. This, alongside the autonomy of US states, cities and districts allows local governments to circumvent such an unpopular federal decision and maintain the climate commitments that have such widespread support in the US, could limit the effects of the withdrawal.
It’s possible this is why the dollar has proved relatively unreactive to the news, although there could be ramifications for trade deals, international pacts and, ultimately, economic growth should tensions sour further.
Have a great day and a better weekend.