- UK construction PMI unexpectedly beats the forecast in October
- Construction output shrank in the second and third quarters of 2017, construction firms’ confidence slumped
- GBP popped up on the headline but quickly erased that move
While everybody is impatiently awaiting the BoE decision we got quite a decent reading when it comes to construction PMI which managed to beat the forecast. However, the devil is in the details and the overall landscape isn’t so rosy when we take a closer look into the Markit report.
Unexpectedly UK construction PMI came in at 50.8 in October while the consensus had pointed to just a mere improvement from 48.1 to 48.5. On the surface it could be seen as a factor which may convince more skeptics regarding today’s possible rate increase, albeit details are less encouraging. Namely confidence among firms in the sector about business prospects for the next 12 months declined to the lowest level since December 2012, the time when the UK economy filtered with recession. Moreover, the official data showed construction output shrank in the second and third quarters of 2017 whereas lingering Brexit negotiations could weigh on businesses’ confidence going forward. On top of this, according the Markit staff recruitment has also begun to tail off as construction companies head into the winter with heightened concern about demand conditions. Keep in mind that services PMI (the most important one) will be released tomorrow.
It seems that the GBPUSD could be already poised to move south as two bearish candlesticks have been drawn lately. Thus, until the price hovers below 1.33 a pullback towards 1.3030 could be in the offing. Notice that the OIS-implied odds for a hike stand at 91% suggesting a rate hike has been fully priced into the GBP. Having said that the forward guidance could be decisive for the GBP but given the state of play of the UK economy one may suspect that a majority of investors could opt to sell the pound following the BoE statement.