The third and final business survey from the UK this week has delivered a slightly positive message from the service sector, with the December purchasing managers index (PMI) rising to 51.2. The reading is above the 50.4 seen in the prior month and given that economists had predicted a rise to 50.7 it is better than expected and comes just a couple days after the manufacturing equivalent also beat forecasts. The rise in manufacturing PMI was not as positive as it first appeared and largely due to companies taking measures to mitigate the impact of a no-deal Brexit and while today’s data is also pleasing on the face of it, it is far from a beacon of strength. The print means that Q4 GDP remain on track for anaemic growth of 0.1% Q/Q and looking into the details of the report it contained a stark warning with business expectations fell once again to 60.2 from 60.6 in November - marking the weakest 2-month period since 2009!
After a sharp drop a couple days ago, the GBPUSD is looking to recover with the market back near the 1.27 handle. Source: xStation
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China announce RRR cut
The pound remains higher on the day after the release against most of its peers and is not far from the $1.27 handle, although this is due in no small part to some broad based weakness seen in the buck. The FTSE is enjoying a bright start to the final trading session of the week and has received a boost in recent trade after China unexpectedly announced a batch of monetary stimulus. China’s central bank, PBOC, have delivered a boost in cutting the bank reserve ratio by 1 percentage point to release around 1.5T Yuan of liquidity and this has sparked a rally this morning in stocks as they look to recover from recent declines.
Majority of Tory members would opt for no deal over May’s plan
According to the latest poll by the Economic and Social Research Council (ESRC) more than half of Conservative party members would choose leaving the EU without a deal over the one proposed by Theresa May. This comes as a damning blow for the PM as attention turns to the parliamentary vote in just a couple weeks time where she will attempt to get her Brexit deal passed through the Commons. Given 3 options of “leave the EU without a deal”, “Leave the EU with the proposed deal” or “remain a member of the EU” the party members voted in favour 57%, 23% and 15% respectively. When whittled down to just a straight choice between the first two options listed above, it looks even worse for the PM with 64% polling in favour of the former and leaving the EU without a deal. Given the seemingly increased chance of a no deal it is more than a little surprising that the pound has not come under more pressure of late, and the markets could well be in for a rude awakening.
