UK Manufacturing PMI Strengthens
The headline Manufacturing PMI reading rose by 3.1% in April to hit 57.3, well above expectations. The increase was fuelled mainly by strength in new orders, driven by domestic and foreign demand. An increase in inventories of new purchases also supported the rise. Employment and suppliers’ delivery time were roughly unchanged over the month and therefore contributed little to the increase.
The HIS Markit press release noted that firms continue to be positive about the future with roughly 50% of respondents forecasting production volumes to be higher over the next 12 months. Less than 4% of respondents expect to see a decrease. Confidence here is linked to expected improvements in domestic and overseas demand as well as expected company expansions.
- Read more: ISM manufacturing and non-manufacturing gauges ease back in March
Input prices weakened significantly over April marking the third consecutive month of decline. There could still be strength in output prices as firms continue to look to pass through recent higher input prices though as input prices continue to fall, output prices should also start to come down.
Manufacturing PMI levels are indicative of improved competitiveness following Sterling’s depreciation and a healthy pickup in EA demand. The fall-back in inflationary pressures, the squeeze in real incomes and also the potential weakness in credit growth could put pressure on the consumer sector. Similarly, gains in competitiveness could reduce over time which would see all sectors returning to cautiousness over 2017 as negotiations between the UK and the EU begin.
US Manufacturing Falls Back in April
The headline US ISM Manufacturing reading fell back in April to 54.8 which was below expectations. However, despite the decline, the report reflected strength across major subcomponents. Production (58.6) and new orders (57.5) remain in expansionary territory and signal further gains in industrial production over the next few months. New export orders (59.5) also rose further, signalling more momentum from external demand and improved export prospects for manufacturing firms.
However, the employment index weakened to 52 from 58.9 in March though is still in line with positive employment gains in the sector. The decline in the overall index brings the series in line with output data. After the election, the reading surged higher, however, this sharp increase was not matched with a surge in production. Instead, production has only lifted slightly tough further gains are expected over the course of the year.
US PCE Rises After slow Q1 Start
The personal income and spending report for March was slightly lower than expected with PI increasing 0.2% and nominal spending flat, ending Q1 on a weak note. However, after adjusting for price changes, real spending lifted a firm 0.3%. Subdued consumption amid ongoing increases in personal income pushed savings rates significantly higher over Q1. After hitting a two-year low in December 2016 at 5.2%, the savings rate has since increased to 5.9% in March, moving into the high end of the range set since 2013.
The inflation element of the report was weak with the monthly change in headline and core PCE hitting -0.1% and -0.2% respectively. This saw the YoY rates moving to 1.8% and 1.6% for headline and core PCE respectively. Food prices continued to increase rising 0.4% MoM, marking a firm gain after weakness over much of 2016 while energy prices fell 3.4%. The majority of the weakness over March is likely fuelled by one-off factors and as such inflation is likely to start to firm MoM in the near term as increases in services price pressures firm up over the coming quarters, pushing inflation higher.
Having broken out above key resistance at the 1.2770/1.2850 level (post-Brexit lows) a retest of this level should act as support with GBPUSD now on course to move up to test deeper resistance at the 1.3440/1.3511 level which was the September 2016 high.
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