- Sterling could benefit from stronger June PMI surveys.
- Manufacturing PMI has been negative for 11 of 13 months to May.
- June manufacturing PMI forecast to be 45 after 40.7 in May.
- Services PMI to rise to 40 from 29 in May and 13.4 in April.
The sterling has languished for the past two weeks from an unforgiving combination of Brexit and the stubborn coronavirus. It may get a lift on Tuesday if the economy can post a strong recovery signal from April’s pandemic economic low.
Purchasing managers’ indexes (PMI) from IHS Markit of London are expected to continue their rebound into June from the April scores that set record lows in the manufacturing and services surveys.
Manufacturing PMI is forecast to climb to 45 from 40.7 in May and 32.6 in April. The index has been below the 50 demarcation between expansion and contraction for 11 of the 13 months since April 2019.
The index for services is expected to rise to 40 in June from 29 in May and 13.4 in April. Before the current plunge the low reading had been 40.1 in November 2008.
IHS Markit service PMI
Source: FXStreet
Though neither index is projected to move into expansion the farther the distance from the April lows the more secure markets will be that the pandemic collapse was a vicious but temporary contraction unlikely to bring on an extended recession.
Pound Sterling
The pound has been trending lower for almost two weeks after reaching a post-pandemic high of 1.2813 on June 10. During the March viral panic it had first climbed to a high of 1.3200 on March 9 and then fell precipitously over the next two weeks as the world’s financial markets desperately bought dollars and dollar assets, touching bottom on March 20 at 1.1412.
The recovery from that panic was as swift and in a week, March 27 the pound entered the 1.2200 to 1.2400 range that would last until early June.
Conclusion: April and May statistics
April figures for manufacturing and industrial production were the worst on record as was the index of services which measures the addition of gross value in the sector. Gross domestic product fell 20.4% in April another all-time low along with the claimant count for unemployment at 1.0327 million.
Retail sales, one of the few released statistics covering May, showed a promising recovery rising 12% after tumbling 18% in April, each the directional record.
UK retail sales
Source: FXStreet
Markets are waiting to be convinced the economic catastrophe that overtook the UK economy in March and April reversed in May and that the climb from the pit is proceeding apace.
Consumers have played their part, these PMI numbers will tell if businesses have received the message. The sterling and FTSE are waiting for the answer.
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