UK data beats estimates but remains soft; GBP a little lower

Summary:

  • Final Manufacturing PMI: 48.9 vs 48.3 exp. 48.3 prior. 

  • 3rd beat in a row but 7th consecutive sub 50 

  • GBP remains lower on the day as polls narrow a little 


The latest read on the manufacturing sector has come in better than expected, with a widely followed gauge of activity topping estimates for the 3rd month in a row. However, this is largely due to pessimistic forecasts and the PMI remains in contractionary territory for the 7th consecutive month. Given these conflicting trends, quite different messages can be taken from the data but overall it is probably fair to say that while there has been an improvement in recent months, the big picture still looks pretty bleak.

While the PMI reading beat estimates it was still below the prior month’s and more importantly beneath the 50 mark that denotes expansion/contraction - for the 7th consecutive month. Source: Bloomberg

 

This data was also the final reading after the flash PMI released just over a week ago, and serves as an example of how these additional takes may not really help to deliver greater clarity. The flash release came in at 48.3 against an expected 48.9, before today’s final number rose to 48.9 from a consensus forecast of 48.3. The prior month’s final PMI was 49.6. 


In terms of market reaction the pound has ticked a little higher in response, although it remains a little lower on balance after a slightly soft start to the week. The latest election polls released over the weekend point to a narrowing of the Tory lead and investors may start to believe that this is the beginning of a trend reminiscent of the one seen last time out, when Labour closed the gap significantly in the weeks running up to the 2017 ballot. It is a little too early to say with any degree of certainty that we are in for a repeat, especially considering that the Conservatives still hold a double-digit lead in most polls, but any further narrowing in the coming days could see additional weakness in the pound.  

GBPUSD gapped lower over the weekend after the latest polls. The pound is showing a little bit of weakness as the Tory lead narrows in the polls. Price still trades towards the middle of its recent range. Source: xStation 

 

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