This morning saw the release of the UK Manufacturing PMI for August, which came in far better than expected and actually represented the greatest level of expansion seen in 2016, also including a slight upward revision to last month’s data. This has sent the pound on a rally against many of its major peers and it’s due to this currency appreciation that has seen the FTSE 100 give back its early gains.
Impressive rebound in manufacturing
The survey of purchasing managers rose to 53.3, which marked a sharp increase on the prior revised reading of 48.3, with 50 marking the line between expansion and contraction. Since the knee-jerk reaction following the EU referendum which saw economic indicators contract sharply last month, today’s number represents an impressive rebound ahead of the construction and services reading in the coming days. With the construction sector arguably the worst hit in the wake of the vote and the services sector being the largest of the three, a similar improvement in their readings will add support to calls that doomsdayers were overly pessimistic. Unfortunately, as the separation procedure is yet to begin it is still far too early for either side to claim victory and the long-term impact on the UK economy cannot be accurately gauged until the new trading terms are established.
Housebuilders rally on data release
The best performing stocks on the FTSE100 are housebuilders with Taylor Wimpey (LON:TW), Berkeley Group Hldgs (LON:BKGH) and Barratt Developments (LON:BDEV) all gaining over 2% as the rebound in manufacturing is leading traders to believe that the construction data will receive a similar recovery tomorrow. Banking stocks have also risen on the upbeat sentiment, possibly due to expectations that the Bank of England won’t need to provide as aggressive easing measures going forward as was previously thought. HSBC, Lloyds (LON:LLOY) and Barclays (LON:BARC) are currently residing in the upper echelons of the index. Towards the foot of the performance table for UK blue chips are several companies who generate their revenues predominantly in currencies other than sterling. The large drop in the oil price yesterday of more than 3% on a higher than expected build in US stockpiles has seen Royal Dutch Shell (LON:RDSa) and BP (LON:BP) both continue to decline and they currently trade on their lows for the week.