The UK’s June construction PMI was much weaker than expected in dropping sharply to a 43.1 headline reading, down significantly from 48.6 in May and indicating the sharpest pace of contraction in the sector in just over 10 years. The median forecast had been for a modest rise, to 49.3. Sharp declines were seen in both business activity and incoming new work. Risk aversion got the blame as a consequence of prolonged Brexit and associated political uncertainty in the UK, and a general slowing in the economy. Among the details of the survey was the biggest drop in residential house building in three years, while commercial work fell for a sixth consecutive month and civil engineering activity contracted by the most since 2009. Business confidence held near to the seven-month low seen in May. Sterling and UK yields turned lower in the wake of the data. The report follows yesterday’s markedly underwhelming manufacturing PMI, and markets are now primed for downside risk at tomorrow’s release of the much more significant June Services PMI.
Cable legged down to 1.2605 and within sight of the 1.2600 handle, following yesterday’s close when the pair again moved below the 20-day moving average. Sterling remains biased to the downside, with all key crosses on the wrong side of the 20-day moving average. Indeed, with a strong Oil price and uncertainty a constant in the UK, GBPCAD is in its 37th consecutive day (and 870 pips) below this key indicator.
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