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GBPUSD bull continuation
From HSBC this morning:
The UK PMIs were both unchanged from their October levels in November, with manufacturing at 46.2
(consensus: 45.8), and services at 48.8 (consensus: 48.0).
This marked the fourth consecutive month in which the composite PMI (48.3) was below 50, indicating a contraction in private sector activity, with the surveyors reporting that “squeezed client budgets continued to hit demand in both the manufacturing and service sectors”.
In manufacturing, some indices, like output and new orders, ticked up, but remained well below 50. But the pace of job losses accelerated (chart 1) and the new export orders index dropped to its lowest since May 2020. According to S&P Global, “many survey respondents commented on Brexit-related constraints on export demand in November, in addition to the unfavorable global economic backdrop”.
Not all bad news
It was not all bad news: supply chain indicators for manufacturers continued to improve, and survey respondents said that fewer issues on this front had helped to lift production volumes in November.
Meanwhile, services business confidence rose a little, as fewer respondents cited domestic political uncertainty as a concern. Remarkably, the service sector continues to be in hiring mode, albeit with the employment index falling to a 21-month low.
The price indices continue to tell a broadly disinflationary story, though the services input price index rose again, after five months of declines.
Implications
The best we can say here is that these numbers are a little better than expected (though not by us: we had looked for a small bounce given the UK’s new-found relative political stability). We have a new PM and a new fiscal plan – and although the latter actually increased borrowing this year and next – and kicked the tough decisions into the long grass (see Back(loaded) to the future, 17 November 2022 – that appears to have been enough for the market for now.
It seems UK businesses are less impressed, though: increased political stability was a factor cited by S&P Global in the slightly improved composite confidence index – but this only rose to its second lowest since May 2020. Indeed, there was little in the Autumn Statement for firms. For them, the freeze on energy prices is set to expire in April, with little support to offset this for those outside the hospitality sector.
This underscores the scale of the challenge facing the new PM, in what should be his honeymoon period.
We think the UK is in recession (as do the Bank of England and the Office for Budget Responsibility) –
• The UK PMIs were unchanged in November, compared with October, with manufacturing at 46.2 (consensus: 45.8) and services at 48.8 (consensus: 48.0)
• Price and supply chain indices continue to tell a tale of broad improvement… but the survey backs up the view shared by ourselves, the BoE, and the OBR that the UK is now in recession and these sub-50 PMIs attest to that. While there is clearly some improvement in the goods price inflation outlook – and we revised down our profile for CPI inflation next year, on the back of the new household energy cap that was announced last week – underlying pressures are still elevated. The rebound in the service input cost index is a reminder that the wage growth piece of the inflation puzzle is far from resolved.
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The price action tells you everything you need to know. The markets used the UK PMI to rally as the US dollar dropped as we get closer to the FOMC reducing their rate hike cycle.
The UK PMIs were both unchanged from their October levels in November, with manufacturing at 46.2
(consensus: 45.8), and services at 48.8 (consensus: 48.0).
This marked the fourth consecutive month in which the composite PMI (48.3) was below 50, indicating a contraction in private sector activity, with the surveyors reporting that “squeezed client budgets continued to hit demand in both the manufacturing and service sectors”.
In manufacturing, some indices, like output and new orders, ticked up, but remained well below 50. But the pace of job losses accelerated (chart 1) and the new export orders index dropped to its lowest since May 2020. According to S&P Global, “many survey respondents commented on Brexit-related constraints on export demand in November, in addition to the unfavorable global economic backdrop”.
Not all bad news
It was not all bad news: supply chain indicators for manufacturers continued to improve, and survey respondents said that fewer issues on this front had helped to lift production volumes in November.
Meanwhile, services business confidence rose a little, as fewer respondents cited domestic political uncertainty as a concern. Remarkably, the service sector continues to be in hiring mode, albeit with the employment index falling to a 21-month low.
The price indices continue to tell a broadly disinflationary story, though the services input price index rose again, after five months of declines.
Implications
The best we can say here is that these numbers are a little better than expected (though not by us: we had looked for a small bounce given the UK’s new-found relative political stability). We have a new PM and a new fiscal plan – and although the latter actually increased borrowing this year and next – and kicked the tough decisions into the long grass (see Back(loaded) to the future, 17 November 2022 – that appears to have been enough for the market for now.
It seems UK businesses are less impressed, though: increased political stability was a factor cited by S&P Global in the slightly improved composite confidence index – but this only rose to its second lowest since May 2020. Indeed, there was little in the Autumn Statement for firms. For them, the freeze on energy prices is set to expire in April, with little support to offset this for those outside the hospitality sector.
This underscores the scale of the challenge facing the new PM, in what should be his honeymoon period.
We think the UK is in recession (as do the Bank of England and the Office for Budget Responsibility) –
• The UK PMIs were unchanged in November, compared with October, with manufacturing at 46.2 (consensus: 45.8) and services at 48.8 (consensus: 48.0)
• Price and supply chain indices continue to tell a tale of broad improvement… but the survey backs up the view shared by ourselves, the BoE, and the OBR that the UK is now in recession and these sub-50 PMIs attest to that. While there is clearly some improvement in the goods price inflation outlook – and we revised down our profile for CPI inflation next year, on the back of the new household energy cap that was announced last week – underlying pressures are still elevated. The rebound in the service input cost index is a reminder that the wage growth piece of the inflation puzzle is far from resolved.
------
The price action tells you everything you need to know. The markets used the UK PMI to rally as the US dollar dropped as we get closer to the FOMC reducing their rate hike cycle.
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