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Brexit ultimatum

US manufacturing jolt

Investors were confused yesterday by the same things that had left them unconcerned on Monday. A no-deal Brexit was put back in the middle of the table and US manufacturing suddenly looked shaky. Sterling was flat against the US dollar and just about unchanged on average.

The biggest event was the purchasing managers' index for US manufacturing. In fact there are two of them. One is produced by Markit, the same firm that generates most of the PMIs around the world. The other comes from the Institute of Supply Management, which has been around for much longer and consequently carries more weight with investors. Markit's manufacturing PMI came in a little higher on the month and a touch above forecast at a five-month high of 51.1. It had little impact on the dollar.  

The ISM's measure was expected to be a point higher on the month at 50.1, so it was a shock when it fell by more than a point to 47.8, a ten-year low. Among the components of the index, new export orders suffered the sharpest slowdown, falling more than two points to 41.0. Both Markit and ISM cited trade the war as a negative factor. The dollar lost a cent following the ISM figure.

Get ready for Brexit

Rumour and counter-rumour kept sterling on its toes. The UK manufacturing PMI was better than most of the other offerings from Europe and so moderately helpful to the pound.

The single positive manufacturing PMI from Europe was the French reading, and at 50.1 it only just avoided the drop. The weakest reading came once again from Germany. Its saving grace was that, at a ten-year low of 41.7, it was still a little better than the provisional 41.4 announced two weeks ago. Britain's 48.3 was a four-month high, almost a point above August's level and more than a point ahead of forecast. Yes, it remained in the sub-50 contraction zone but in Europe it was beaten only by France. The Canadian PMI from Markit was closely in line with its US equivalent at 51.0.

Brexit sentiment blew this way and that. First came a feeling that no-deal was becoming more likely, sending the pound to a three-week low against the euro. Then there was a story that Brussels would offer a time limit on the Backstop arrangement for Ireland. The pound went up. Then it went down after the prime minister said he would present the EU with an ultimatum.

Johnson speech

The nature of Johnson's ultimatum to the EU will presumably be made clear today in his speech to the Conservative party conference. Investors will make of it what they can, and do their best to assess whether or not it might win parliamentary approval.

The ecostats today are not a patch on Monday's spate of statistics. Britain's construction PMI is forecast to be unchanged at 45.0 and inflation in Switzerland will probably edge closer to zero.

ADP's employment change figure is the only important announcement from North America. Australia sets the services PMI ball rolling tonight, closely followed by Japan. The Australian balance of trade data are also due. 

GBP: PMI higher but still in shrink mode

GBP: PMI higher but still in shrink mode

USD: Manufacturing PMI rattles investors

USD: Manufacturing PMI rattles investors

EUR: France leads, Germany lags on PMIs

EUR: France leads, Germany lags on PMIs

CAD: Canada on par with the States

CAD: Canada on par with the States

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