Eurozone manufacturing PMI unexpectedly revised down to 47.6 in the final June number, from 47.8 in the preliminary reading. This means the manufacturing reading actually fell back from the already weak final May reading of 47.7. Markit reported ongoing falls in output and new orders, as well as a dip in input prices and a shortening in delivery times.
Of the big four, Germany still has the weakest reading and the final German manufacturing PMI was actually revised down to 45.0 from 45.4 reported initially.
The fact that this is still a 4-month high highlights just how much geopolitical trade tensions and the problems in the automobile industry have impacted the German manufacturing sector. Meanwhile, German jobless numbers fell -1K over the month in seasonally adjusted June numbers, after rising 60K in the previous month. This in turn will also mean reduced upward pressure on wages and ultimately not just reduced consumption, but also more arguments for the ECB to consider additional easing measures.
Meanwhile, UK released June’s manufacturing PMI the same time, which dove to a 76-month low of 48.0 in the headline reading dropping much more sharply than expectations from May’s 49.4. The data clearly shows that the sector is continuing to contract following the marked stockpiling-driven expansion seen ahead of the original Brexit date in late March. The month-on-month contraction was also the most rapid monthly decline seen since 2012.
A combo of high inventories and declining new orders drove the contraction in activity, adding to the familiar themes of Brexit-related uncertainty and slowing economic growth in continental Europe, while the survey also highlighted a fall in demand from the US and Australia.
EURGBP lifted to 0.8966, while Cable dipped further posting the 1.2634 low outside of the hourly lower Bollinger Bands area. Today’s Dollar strength, and the data spur Pound to rotate lower, below the tight band that has been seen moving in the past week. Looking at the intraday charts, technical indicators are configured mix. RSI is bouncing from 30 barrier as MACD lines rolling below the signal line and below neutral zone, suggesting that the recent drift for Pound will continue. In the daily frame though indicators remain negatively configured, presenting the persistence of a negative outlook for Sterling.
Hence, as selling pressure has been renewed, a close today below 4-day Support (which is placed below 20-day SMA), at 1.2660, could retest June’s lows, at 1.2530-1.2560 area. Immediate Resistance is set at 1.2660, and next is at 1.2680 (confluence of 20-, 50- and 200-period SMA in the intraday charts 1H and 4H)
Against that background, markets may be looking at Wednesday’s release of the services PMI with some trepidation now, though the service sector at least won’t have the inventory dynamic at play in the manufacturing sector.
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Andria Pichidi
Market Analyst
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