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The Marketplace - July 3rd 2014
03/07/2014
Sterling made further gains across the board yesterday, boosted by this month’s construction PMI index that expanded despite expectations of a marginal contraction. This month’s ADP non-farm employment change figure took the headlines yesterday, surpassing the most optimistic of forecasts, pleasing investors who expect a surge in US activity during the second half of the year. Today sees a busy schedule for high impact data with the all-important US Jobs number being released at the same time as Draghi speaks to the media at this month’s ECB meeting.
UK Construction Hits Four Month High
British construction activity surged at its fastest annual pace in four months in June which bucked previous expectations of a modest slowdown. The monthly PMI for the construction sector rose to 62.6 in June from 60.0 in May, its highest level since February and well above the forecast for a fall to 59.5. The equivalent manufacturing survey on Tuesday also beat expectations, driving sterling to its highest level in nearly six years and bolstering expectations that the Bank of England would raise interest rates this year.
The construction survey showed the fastest pace in hiring in the sector since 1997 and importantly home building was the fastest-growing sector, with the biggest pick-up in activity since January as rapidly rising house prices, low interest rates and strong demand encouraged developers to press ahead with projects. The figures helped Sterling to main current levels against the US Dollar despite the release of a positive US ADP Job change number yesterday afternoon.
US Economy Adds Most Workers Since 2012
US employment climbed in June by the most since late 2012, boosting sentiment that the US job market is strengthening along with demand. The 281,000 surge exceeded the most optimistic of forecasts and followed a 179,000 increase in May and could show businesses are taking on more workers and limiting dismissals, bolstering economists’ projections that the economy will strengthen after a first-quarter contraction.
The job gains appear to be broad based across all industries and company sizes which will please the markets ahead of this afternoon’s all important US jobs number. Companies employing 500 or more workers added 49,000 jobs whilst medium-sized businesses, with 50 to 499 employees, took on 115,000 workers and small companies increased payrolls by 117,000, the most since February 2012.
This afternoon’s jobs number may also show overall payrolls, which include government agencies rose by 215,000 workers in June after climbing by 217,000 the prior month, according to analyst expectations. The unemployment rate is expected to remain at an almost six year low of 6.3%.
Eurozone Producer Prices Yet to Take Off
Producer price inflation in the Eurozone fell for the fifth consecutive month in May, underlining concerns over deflation, official data showed on yesterday. In this month’s report, Eurostat said that its producer price index eased down by a seasonally adjusted 0.1% in May, in line with expectations. Producer prices inched down 0.1% in April and year-over-year, the producer price index declined at an annualized rate of 1% in May, meeting forecasts and after falling at a rate of 1.2% in April.
Following the release of the data, the Euro failed to recoup recent losses against the Dollar and moved lower against the Pound. ECB President Mario Draghi is expected to speak this morning at the ECB’s monthly meeting, where he will be hoping that historic measures introduced in June to solidify a fragile Eurozone recovery start to take effect.
Today’s Key Data:
GBP – Services PMI: Analysts have forecasted the Service sector measure to contract slightly to 58.1 from 58.6 recorded last month, however both the Construction and Manufacturing measures have both surpassed cautious estimates this week.
EUR – Interest Rate & ECB Press Conference: No change is expected to the benchmark interest rate in the Eurozone, set for release at this month’s ECB meeting, following Draghi’s historic decision to cut the rate to 0.15%. Whilst there isn’t too much expected from this month’s conference, there may some important clues as to the possibility of a further interest rate cut or the possibility of quantitative easing which would undoubtedly send the Euro even lower.
USD – Non-Farm Employment Change: The consensus forecast for the all-important US jobs number predicts another number north of 200,000 following 217,000 being recorded last month. A large number could be expected following yesterday’s ADP non-farm number. Traditionally, the Jobs number at the start of the months garners considerable attention by the markets and is used as a key barometer as to the performance of the US economy.
USD – Unemployment Claims: The number of Americans filing for unemployment last week is expected post 314,000, following 312,000 applications last month.
USD – Unemployment Rate: No change is expected to the headline unemployment rate in the US, holding at 6.3% which is the lowest in six years.
USD – ISM Non-Manufacturing PMI: Analysts are expecting the June PMI to rise to 55.8 given gains in regional activity indicators. The Philly Fed and Empire State surveys both posted gains in June when adjusted to the ISM weighting scheme. In addition, the June preliminary reading of the Markit US manufacturing PMI moved up 1.1 index points driven by the fastest output and new orders growth in about four years
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