UK flash July PMI plunged to 47.7 in the composite reading from 52.2 in June and below the median forecast for a decline to 48.5. The headline and nearly all of the component parts fell at the lowest levels since the height of the financial crisis in early 2009, giving a clear indication of the impact that the Brexit vote has had. Markit, the compiler of the survey, described the data showing a “dramatic deterioration in the economy,” estimating that the data is signalling a 0.4% contraction in Q3 GDP, assuming that August and September continue the slowing seen this month. A sharp drop in new orders, to 45.5 from 52.3, and a dive in the expectations component of the services PMI, both good leading indicators of the economy, suggest that the pain will continue. Sterling dove over a big figure to a 1.3165 low versus the dollar in the wake of the data release. The flash indicator is based on 80% of responses to the full survey. Final data will be released at the beginning of August.
The 4h chart has support at the 20 MA at 1.3182 and 1.3110 and resistance at 1.3275.
Meanwhile across the English Channel, French and German PMIs better than expected. French manufacturing as well as services PMIs unexpectedly improved in July, and while the German manufacturing reading eased, it fell back less than feared and remains firmly above the 50 point no change mark, while the services reading actually jumped higher. So a confirmation of what French national business sentiment numbers already indicated yesterday, namely that the impact of the Brexit vote on real sector sentiment has been limited so far, even as uncertainty increases. The financial sector by contrast has been hit severely, which confirms the issues Draghi raised yesterday – the apparent divergence between financial market and real sector confidence.
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About Janne Muta, HotForex’s Chief Market Analyst
Janne Muta is a seasoned industry professional with over 16 years experience in the global markets. Originally from Finland, Janne has worked for institutions in both Helsinki and London as an institutional fund manager, global market analyst and FX educator.
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