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UK’s PMI beats expectations across the board

Summary:

  • UK’s manufacturing PMI unexpectedly rises in August with all components suggesting a stronger performance
  • UK’s manufacturing output could have already bottomed out
  • GBP hangs around the levels from before the release

The UK’s manufacturing PMI unexpectedly moved up in August from 55.3 (revised up from 55.1) to 56.9 quite easily beating the consensus at 55. It’s worth underlining that all five components - output, new orders, employment, supplier’s delivery times and stocks of purchases - were consistent with a stronger performance for the manufacturing industry during August, the IHS Markit said in a note.

link do file download linkThe output sub-index suggests that a bottom in terms of manufacturing production might have been already passed. Source: IHS Markit

The Markit reported that production had risen at the steepest pace in seven months. If that kind of recovery turns out to be sustained it might mean that the lowest point in terms of manufacturing production could be already behind us. If so, a larger rebound of output could be expected. On top of that, it’s worth recalling the latest GDP report pointed to the highest contribution of investments to a second quarter GDP over the course of last quarters. Thus, if businesses’ expectations retain quite high, it could translate into acceleration as far as manufacturing output is concerned.

Let us point out that the domestic market accounted for the major source of new contracts wins, hence it suggests that businesses are not so heavily concerned about risks stemming from Brexit negotiations, at least in the shorter horizon. In addition, the trend in new export business remained also robust (it has been enhanced by the softer GBP which boosts export competitiveness). The report showed that even as foreign take-up ticked down in August, it remained among the strongest seen since that kind of data were first collected in January 1996. 

link do file download linkThe EURGBP has already marked a bearish candlestick on a daily time frame which could be a first sign of fatigue of bulls. Source: xStation5

Even as the data may be counted as solid one, it has yet to translate into the higher pound on the FX market. Nevertheless, as per our daily calendar post, the pair could take advantage of the decent reading and, along with possible softer performance of the shared currency, could give rise to an extended pullback. A first target to watch for sellers seem to be placed at 0.9050 where a 23.6% retracement of a recent almost vertical move extends being a linchpin for bulls.

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