Persistent vs Temporary
With the campaigns drawing to a close in the next 24hrs we can afford to take a longer look at the economic matters at the heart of the UK economy. Friday’s manufacturing numbers that showed a sector being weakened by the strong pounds’s effect on demand from abroad took the pound sharply lower, something that yesterday’s poor construction number was unable to do.
While the weak pound is viewed as a longer-term issue for the manufacturing sector, those in the construction sector are more worried about the election. Respondents suggested uncertainty around the forthcoming election contributed to delays in clients’ spending decisions according to the release. Obviously we’ll have to wait until after the election to see whether a bounce back is forthcoming. GBP was held up despite the poor number on the basis that the market believes that any slowing of investment will be caught up in short order.
Today’s services PMI number is a lot more important for the UK economy, given the sector’s contribution to GDP. Much like the manufacturing sector, it will be a tale of inflation and wage pressures that will guide the pound’s reaction. I would not be surprised as well if there was some anecdotal evidence of spending decisions once again being held over until the dust settles in Westminster. Our thoughts on what will happen to the pound in the aftermath of the election can be found here.
Weaker euro to help Eurozone services…eventually
Services PMIs are also due from Eurozone members this morning. Preliminary numbers released last week suggested that small slips of growth are being seen in Europe’s services sectors. As we head into the summer, the hopes will be that the devalued euro will drag further investment and tourism into the area. April’s numbers, released today, may be a bit soon for that however.
Kiwi losing jobs
The largest mover overnight has been the New Zealand dollar following a soft jobs report. Unemployment rose in New Zealand to 5.8% in Q1 following a dip to 5.5% towards the end of last year. Likewise the wage picture was slightly poorer than all would have wanted; 0.3% on the quarter is down from 0.5% in the previous 3 months. NZD is down around a per cent against the US dollar and 1.2% against the pound.
Trade points to contraction in US economy
The dollar was unable to make any gains yesterday following some poor trade numbers through Q1. According to Naryana Kocherlakota, Minneapolis Federal Reserve President spoke yesterday stating that once the trade numbers are included “we’re probably going to be in a negative situation for the first quarter, meaning that real gross domestic product actually contracted in the first quarter”. He was also worried about the lack of inflation being seen in the US economy. Friday’s payrolls announcement remains crucial given the weakness that Q1 data from the US has been showing; a strong number will ease these fears, a weak number will have analysts tearing at their clothes and rubbing gravel through their hair.
ADP employment, another measure of how many jobs have been added to the US economy in the past month, is released today at 13.15.
Elsewhere, we have Eurozone retail sales at 10.00.