Caution re-emerges

PMI trips GBP

Fearless investigative journalists at the Daily Mail reveal how supermarkets are "brutally" scaling back the savings afforded by their loyalty cards. Typical shoppers with 27 loyalty cards now see little return for that loyalty. And all they got from their Sterling loyalty card yesterday was a kick in the teeth.

The pound came unstuck on Tuesday morning when the UK manufacturing sector purchasing managers' index came in at 49.2, two points below forecast and almost two points lower on the month. It was better than the equivalent readings from France (48.0) and Japan (48.2) but that isn't saying much. On a scale of 0-100 the PMI is compiled from a survey - in this case of manufacturing firms - which asks about new orders, production, inventories, suppliers' delivery times and employment. A result greater than 50 means, by and large, that business is growing.

Although manufacturing accounts for only 1/7 of the British economy it still tugs a nerve, not only among politicians and the media but also with investors. They did not like yesterday's unexpectedly sub-50 figure and they took it out on the pound. During the remainder of the London session it moved steadily lower against the US dollar, the euro and the Swiss franc.

Not all bad

Sterling's decline was not an across-the-board one. It was mostly steady against the antipodean dollars and headed higher against the Canadian dollar and South African rand. In other words, the commodity-oriented currencies had similar or bigger problems. Mainly that was a symptom of greater caution among investors.

That weak UK manufacturing PMI might well have contributed to that caution but, for whatever reason, investors became less sanguine about global economic growth. Equity prices tended to decline and oil was down by -3.5%. South Africa's rand was hardest-hit, falling by -1.7%, and the Loonie was in penultimate place with a one-cent loss. The US dollar was in the lead, adding a cent and a third, while the euro and the franc shared second place with gains of two thirds of a cent.

Having remained steady yesterday the NZ dollar lost ground this morning to open in London nearly a cent lower. Last night's NZ employment data were mostly alright but unemployment picked up to 5.7% in the first quarter.

Yep, more PMIs

It is the turn of the services sector to hog the ecostats today. Australia kicked off with a slight improvement to 49.7 and there are a dozen more PMI readings to come. There will also be balance of trade data from North America this afternoon and Australia tonight.

The euro zone and US services PMIs are all expected to be in the low fifties, with Spain likely to deliver the best result once again. Also from the States are factory orders and the ADP employment change figure.

The sole UK ecostat is the construction sector PMI. Although construction represents only 1/16 of the economy, yesterday's manufacturing miss makes today's number important.