July 07, 2022

Daily Report 07/07/2022

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The UK PMI construction index declined to a 9-month low of 52.6 for June from 56.4 previously and below consensus forecasts of 55.0. The residential sector dipped into contraction territory and overall business optimism declined to 23-month lows while cost pressures remained strong, although supply constraints eased slightly. Bank of England chief economist Pill stated that further monetary tightening was likely and he would be willing to step-up the pace of tightening if the data supported such moves. He did, however, warn that there would be basically no growth in the economy over the next year and also warned against big rate hikes, especially as this could destabilise financial markets. Deputy Governor Cunliffe reiterated that the bank was prepared to do whatever was necessary to tackle inflation. Overall confidence in the UK outlook remained very weak and markets were also unsettled by intense political uncertainty and a lack of clear direction surrounding fiscal policy. Sterling dipped to fresh 2-year lows against the Dollar before a limited recovery. Prime Minister Johnson vowed to fight on despite a wave of ministerial resignations which maintained a chaotic political situation.

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German factory orders edged 0.1% higher for May after a revised 1.8% decline the previous month and slightly above expectations, but overall confidence in the Euro-Zone outlook remained notably weak. There were further concerns over the impact of high energy prices and the risk of supply disruption. In particular, there were important reservations over the German outlook and the Euro continued to lose ground. The IfW institute warned that there were still important supply issues with containers stuck in the North Sea and overall confidence in the German outlook remained weak. The Euro declined to fresh 19-year lows before attempting to stabilise later in the day.

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The US ISM non-manufacturing index retreated to 55.3 for June from 55.9 previously, although this was above market expectations of 54.3. There was also a slowdown in new orders growth, but business activity expanded at a slightly faster pace. There was a net decline in employment for the month due in part to supply difficulties while order backlogs increased. The prices index eased only slightly with companies continuing to report sharp upward pressure on costs. The JOLTS data recorded a further strong reading for job openings with a small decline to 11.25mn from a revised 11.68mn and above market expectations. 

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