Brexit backlash

Pound's PMI plight

On Friday The Guardian published "The Brexit Quiz: one month on, how much do you know?" Without wishing to spoil the fun, anyone answering "We don't know" to all ten questions will score 70%.  But we do know how Brexit has affected the PMI readings and they are not pretty.

When Markit, a financial information firm, publishes its monthly provisional purchasing managers' index readings for Europe and the United States it does not usually include the UK figures. On Friday, for the first time, it did so. The preliminary manufacturing sector PMI for July came in at 49.1 and for the services sector it was 47.4. Both were sharply lower and both were below the 50 breakeven level at 49.1 and 47.1 respectively. Whilst the PMIs on their own are not sufficient to identify a recession, they are early indicators of how the private sector is performing. And sub-50 readings mean it is slowing down. 

The reaction of investors was unequivocal. They did not like what they saw and they took it out on the pound, instantly knocking one US cent and one and a half euro cents off sterling's value. It carried on lower during the rest of Friday before coming to a halt over the weekend and picking up somewhat today. The pound's average loss since Friday morning was -0.4%.

Loonie lacks luck

Figures released on Friday showed Canadian retail sales growing by 0.2% in June for an annual increase of 0.9%. Both figures beat forecast. The headline rate of inflation was steady at 1.5% and the Bank of Canada's "core" inflation measure was unchanged at 2.1%. Yet the Canadian dollar fell.

It was unfortunate for the Loonie that those numbers - all of which were better than expected - coincided with a downturn in the price of oil. Investors focused on the oil price rather than the Canadian ecostats, leaving the Canadian dollar with a net daily loss of a quarter of a US cent. 

The only other data of any consequence on Friday were the rest of the provisional PMI readings, almost all of which were better than forecast. The weakest apart from Britain's were those from France, where manufacturing remained weak at 48.6 and services edged into the growth zone at 50.3.

UK manufacturing orders

The CBI's Industrial Trends Survey this morning will be watched carefully for confirmation - or otherwise - of a Brexit effect on manufacturers' order books. For Euroland the important numbers will be IFO's assessments of German business confidence.

Having seen the UK PMIs it would be fair to expect a weak result from the CBI's survey. It would also be no great surprise to see German companies in a less upbeat mood. All those numbers relate to July, so should take into account the psychological effect of the Brexit vote.

The Dallas Fed's manufacturing index comes out after lunch and New Zealand's balance of trade data appear tonight. And that's the lot.