The main economic data point of the morning and the final major release before tomorrow’s BoE meeting showed the fastest monthly decline in services output and new business since March 2009. Despite this poor reading the market reaction has been fairly muted, largely due to the 47.4 figure coming in in-line with expectations and also matching the flash estimate released just under two weeks ago. The third economic release of the week for the UK rounds off the latest set of indicators and whilst all three - manufacturing, construction and services - show a contraction in activity, only the manufacturing number on Monday was worse than expected.
Focus shifts to BoE
Now the three pieces of PMI data have been released, the focus is solely turned to tomorrow’s Bank of England meeting and the probability of the announcement of some monetary policy easing. Taken together the PMI readings for July of 45.9, 47.4 and 48.2 for construction, services and manufacturing respectively show clear weakness and provide fairly compelling evidence that - at least in the short-term - the EU referendum has had a negative impact on the economy. With Governor Carney stating before the vote that the central bank had contingency plans in place to help soften the blow in the event of a Brexit, a failure to provide appropriate stimulus measures tomorrow could rock the markets and cause some large moves. On the other hand, Mr. Carney and members of the MPC will also be aware that with article 50 unlikely to be invoked this year, the process of an exit could wrangle on for quite some time yet and the Canadian may decide to keep some powder dry. MPC voting member Martin Weale stated last week that the flash estimates for this week’s data had surprised him and materially altered his stance to a more dovish standpoint on the level of monetary accommodation that should be provided. It seems unlikely that Weale is the only member of the rate-setting body that feels this way, and Gertjan Vlieghe - the sole dissenter at the last meeting from keeping rates on hold - is likely to be far better supported in light of the recent data.
FTSE set for three down days in a row?
The FTSE 100 is trading slightly lower this morning, with the index in danger of making it a red close for the third successive day this week. Pearson (LON:PSON) is the worst performing stock on the index at the time of writing down by approximately 1.5% so far. With the benchmark of by less than 10 points, there’s not been too many broad moves in particular sectors this morning with individual shares such as Paddy Power Betfair and United Utilities seeing some relatively mild selling. Along these lines the larger moves in stocks are actually seen in the index’s risers with with HSBC and Standard Chartered (LON:STAN) both gaining in percentage terms almost double the losses seen n Pearson.