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Data from the Office for National Statistics has shown that U.K. manufacturing output fell 1.3% during May, the first drop since November last year and the biggest decline since January 2013. On the year, manufacturing output rose 3.7%, and has grown for nine consecutive months.
Industrial production fell 0.7% in May from April, the largest drop since August of last year. Industrial production grew 2.3% on the year, and has now grown for nine months.
The monthly falls in the industrial sector aren't a sign of weakness in the economy, says the Office for National Statistics, but rather it suggests a slowdown in the pace of growth among manufacturers in the second-quarter.
The British Chambers of Commerce's second-quarter economic survey also indicates a slower pace of growth in the manufacturing sector. Despite the slowdown, the BCC did not make changes to its GDP forecast of 0.8% for Q2 and 3.1% for the year, and warned the Bank of England not to raise interest rates to protect growth recovery.
The pound is up to new multiyear highs at $1.7139 after the U.K. PMI unexpectedly rises to 57.5 in June from 57 the previous month. Forecasts were for a dip to 56.8. The New Orders subindex rose to 61 from 59.5%. The FTSE 100 is ahead 0.5%.
Markit's Rob Dobson: "With levels of production surging higher, and order books swollen by a further upswing in demand from both domestic and overseas clients, job creation accelerated to its highest for over three years."
"The relatively low probability attached to a bank rate increase this year implied by some financial market prices [is] somewhat surprising," says the Bank of England in the minutes to its early June policy meeting.
That meeting took place just before Governor Mark Carney's speech at which he began prepping markets for a rate hike before the end of the year.
The news being priced in already, cable is steady at $1.6950 and the FTSE is ahead by 0.4%.
Short Sterling futures have priced in a 25 basis point hike in British interest rates before year-end following Mark Carney's suggestion yesterday that a rate boost could come sooner than markets expect. The market has also priced in 25 basis point boosts for each quarter of 2015.
Looking at U.S. rates, the long-end of the Treasury curve didn't react to Carney's unexpected hawkishness, but the short end is a different story, with the 3-year Treasury yield up 5.5 basis points to 0.952%, the highest since May 2011. Looking at Eurodollar futures, the timing of the Fed's first hike was nudged forward a bit to about April of next year.
"There's already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced," says Carney in the annual Mansion House Speech. "It could happen sooner than markets currently expect."
The previous line is good for about an 80 pip spike in cable, now buying $1.6909, more or less its highest level since the financial crisis.
Growth in the UK manufacturing sector for the month of April indicates another sign of economic recovery. Manufacturing increased 0.4% between March and April, resulting in the fastest annual growth rate (4.4%) in three years.
The overall production sector was up 0.4%, pushing the annual growth rate to 3%.
April was also the fifth consecutive month of rising output – the record since mid-2010.
Interesting action in the markets finds most doing a complete reversal of their knee-jerk response following the ECB rate cut and early part of the Draghi press conference (where he seemed to be laying the groundwork for QE).
The euro (FXE) has turned around more than 100 pips and gone green on the session. Germany's DAX (EWG) and London's FTSE (EWU) have turned lower, though the periphery (EWI, EWP) is hanging on to gains. The 10-year Treasury yield - which jumped to 2.64% - has returned to 2.59%. TLT -0.1%, TBT +0.2%
Showing little reaction in the immediate aftermath of the ECB action, gold is now moving noticeably higher at $1,253 per ounce. GLD +0.75%
The Stoxx 50 (FEZ) is up 0.8% after being about flat ahead of the ECB rate decision, at which the central bank cut all three of its benchmark rates, including taking the deposit facility rate into negative territory.
Italy (EWI) with a 1.3% gain and France (EWQ) ahead 1% lead the way.
The euro (FXE) tumbles about 40 pips, now off 0.3% on the session and buying $1.3563.
"Record-low interest rates are no longer necessary," says Berenberg senior economist Christian Schulz, following a better-than-expected read from the U.K. services PMI, which fell to 58.6 in May from 58.7 in April, but beat expectations of 58.2. “The latest data support our call that the first hike will come in November 2014.”
Sterling (FXB) cuts its losses following the strong print, now down 0.1% and buying $1.6732. The FTSE, however, isn't as big of a fan of the economic news, quickly shedding 0.3% after the report.
Euroskeptic and far-right parties have made strong gains in some countries in elections for the European parliament as voters expressed resentment at the EU and the severe austerity it has promoted.
A stand-out result is the 25% that the anti-euro Front National won in France, where President François Hollande's Socialists received just 14%.
In Britain, UKIP, which wants the country to leave the EU, took the most votes with a share of more than 27%. Anti-EU parties also did well in Greece and Denmark.
Markets seem to be fairly sanguine about the results, with the euro +0.1% at $1.3638.
In Italy, the center-left ruling Democrat Party, led by new Prime Minister Matteo Renzi, won 41% of the vote. "The outcome is...likely to delight the markets, where investors can be expected to see it as a resounding vote of confidence in the 39 year-old prime minister, his youthful cabinet and their ambitious program of political and economic reforms," writes the Economist's Charlemagne column. The FTSE Mib is +2.5%.
Euro Stoxx 600 +0.35%, London closed, Paris +0.7%, Frankfurt +1.5%, Madrid +0.7%.
The BOE's minutes take on a bit more of a hawkish tone, indicating that some policy makers are moving closer to voting for an increase in interest rates, although all of them first want the slack in the U.K. economy to ease.
The minutes come after BOE Governor Mark Carney said last week that the economy had "edged closer" to a need for a rate rise. He has also identified the housing market, where prices have been rising sharply, as a major threat to stability.
The pound is +0.4% at $1.6913, while the FTSE is +0.1%. (PR)
U.K. retail sales grew at the quickest rate since May 2004 in April, jumping +6.9% on year vs +4.8% in March and beating consensus of +5.2.
On month, sales +1.3% vs +0.5% and consensus that was also +0.5%.
Excluding fuel, sales +1.8% vs +0.1% and +0.5%; on year, sales +7.7% vs +4.9% and +5.3%.
While the U.K. government will probably welcome the figures, the data may place a doubt on hopes of shifting the economy away from consumption. (PR)
Meanwhile, the Bank of England's Monetary Policy Committee voted unanimously, as expected, to keep interest rates at 0.5% and against more quantitative easing at a meeting earlier this month, the minutes of the meeting show. (PR)
The pound jumps and is +0.4% at $1.6913, while the FTSE is -0.2%.
U.K. inflation climbed to 1.8% on year in April from 1.6% in March and exceeded consensus of 1.7%.
On month, CPI rose to +0.4% from +0.2% and topped forecasts of +0.3%.
Core inflation +2% on year vs +1.6% and +1.8%.
"Increases in transport costs, notably air fares, sea fares and motor fuels, provided the largest contribution to the rise in the rate," the statistics office says, with the timing of Easter "likely to have had an impact." A drop in food prices "was the largest offsetting factor." (PR)
Factory output prices (PPI) flat on month vs +0.2% and +0.2%. (PR)
The pound is +0.1% at $1.6836, while the FTSE 100 is -0.4%.
The U.K.'s unemployment rate fell to a 5-year low of 6.8% in Q1, says the Office for National Statistics today, giving more fuel to those calling on the Bank of England to hike rates. "Record low interest rates are increasingly unnecessary,” says Rob Wood, an economist at Berenberg Bank and a former BOE official.
The BOE, however - in its May inflation report released after the unemployment print - acknowledges the rebounding economy, but says more slack needs to be absorbed and reiterates its low-rate pledge. The outlook for inflation in the medium-term remains benign, says BOE Governor Mark Carney.
The pound slips vs. the dollar, down 0.25% and buying $1.6786.