UK PMIs on a hat trick

Talk is cheap
Where more humble bodies publish statements the G20 issues communiqués.  Of the half dozen thrown up by the weekend meeting in Hangzhou the one put together by finance ministers and central bankers is of most interest here because of what the authors don't want to see.

"Excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability... We will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes. We will resist all forms of protectionism." The first bit is undoubtedly true but there is surely a little tongue-in-cheek to the rest of it. 

Whilst the communiqué says "we will consult closely on exchange rates" the assumption is that the consultation will be of a purely academic nature. With a third of G20 members trying to weaken their currencies there is little chance of coordinated action.

Wrong again
Analysts have a tendency to overestimate August's monthly change in US nonfarm payrolls and they did so again with the number that printed on Friday. A lower-than-forecast number hurt the dollar, especially against the commodity-related currencies. Analysts also got it wrong with the UK manufacturing sector purchasing managers' index.

For August itself, and for the latest three months after revisions had been applied, there was a shortfall of -30k jobs. It was not a huge difference and it could well disappear when revisions are applied but it was a technical negative for the dollar in that it meant less upward pressure on US interest rates. The dollar lost half a cent on the day to sterling and at least twice that much to the commodity currencies. Friday's top performer was the Canadian dollar.

Thursday's winner, by a country mile, was the British pound. It strengthened by an average of 0.8% against the other dozen most actively-traded currencies after the UK manufacturing PMI came in at 53.3, well above the forecast 49.0. Friday's construction sector PMI was still in the shrinkage zone at 49.2 but, too, beat expectations by three points.

Expecting the unexpected?
The third and last in the PMI series is today's reading for the services sector.  It will be accompanied by the equivalent measures from Europe but the US figure will be delayed until tomorrow by America's Labor Day holiday.

Analysts predict that the UK services PMI will come in at 50.0, indicating neither growth nor contraction. That would be an appreciable improvement to July's 47.4 and would cement the idea that the electorate's decision to leave the EU has done no lasting damage to the economy. However, after the numbers they saw on Thursday and Friday investors could well be expecting the figure to be better than forecast so a merely on-target number might disappoint.

Services PMIs from Australia and Japan earlier today were both below 50 and lower on the month. The euro zone figures are all pencilled in at 51.5 or higher.