UK Manufacturing PMI Fell in January

Britain’s manufacturers showed signs of a slowdown at the start of the year amid rising costs for raw materials, sending factory output to a seven-month low.

The Markit/Cips UK manufacturing PMI index showed activity fell to 55.3 last month from 56.2 in December, missing City forecasts of a further acceleration in growth. However, the PMI remained well above its long-run average of 51.7 and above the 50 mark which separates expansion from contraction.

Britain’s manufacturers have experienced growing demand for orders from China, Japan, the Middle East and North America in recent months. There has also been an upturn in sales in Europe as the continent returns to economic growth after years in the doldrums. The readings come as ministers enter critical talks over trade with Brussels.

However, the upswing in demand for goods has prompted rising global demand for raw materials, pushing up the cost of oil, metals, food and chemicals, and further pressuring manufacturers’ profit margins. The PMI survey showed purchase prices rose at the fastest rate in 11 months in January, and to one of the greatest extents in its history.

The Bank of England is likely to monitor the increase in prices, should companies then push up the cost of goods sold to consumers, which would cause an upturn in inflation at a time when households are already squeezed by weak wage growth and rising prices.

via The Guardian

Construction Spending Rises to All Time High in US

U.S. construction spending increased more than expected in December as investment in private construction projects rose to a record high and federal government outlays rebounded strongly.

The Commerce Department said on Thursday construction spending rose 0.7 percent to an all-time high of $1.25 trillion. November’s construction outlays were revised down to show a 0.6 percent increase instead of the previously reported 0.8 percent advance.

Economists polled by Reuters had forecast construction spending increasing 0.4 percent in December. Construction spending advanced 2.6 percent on a year-on-year basis. It increased 3.8 percent in 2017, the smallest gain since 2011, after rising 6.5 percent in 2016.

In December, spending on private construction projects rose 0.8 percent to a record high of $963.2 billion after increasing 0.7 percent in November. Outlays on private residential projects gained 0.5 percent to the highest level since March 2007 after surging 1.1 percent in November.

Spending on nonresidential structures jumped 1.1 percent in December after climbing 0.3 percent in the prior month.

The government reported last week that spending on nonresidential structures such as oil and gas well drilling rebounded in the fourth quarter after slumping in the third quarter. The economy grew at a 2.6 percent annualized rate in the final three months of 2017, slowing from the third quarter’s brisk 3.2 percent rate.

via CNBC

US Automakers Post Mixed Sales Results in January

Major automakers posted mixed U.S. new vehicle sales figures for January, as American consumers continued to abandon passenger cars in favor of larger, more comfortable pickup trucks, SUVs and crossover models.

U.S. auto industry sales fell 2 percent in 2017 to 17.23 million vehicles after hitting a record high in 2016 and are expected to drop further in 2018 as interest rates rise and more late-model used cars come back to dealer lots to compete with new ones.

General Motors Co (GM.N) reported a 1.3 percent increase in sales for the month, driven by a 16 percent rise in fleet sales. Sales to consumers fell 2.4 percent. The automaker posted strong gains for models such as its Silverado pickup truck and Equinox crossover model, while passenger cars such as the Impala and Cruze continued to struggle.

“All of our brands are building momentum in the industry’s hottest and most profitable segments,” GM’s U.S vice president for sales Kurt McNeil said in a statement.

Ford Motor Co (F.N) posted a 6.6 percent decline in new vehicle sales for January, with retail sales down 4.3 percent. The No. 2 U.S. automaker said its average transaction price rose $2,000, while its average discount to consumers was down $200 versus January 2016.

via Reuters

Fed Expected to Leave Rates Unchanged in Last Yellen Meeting

The Federal Reserve may sound a bit more hawkish as Fed Chair Janet Yellen’s tenure comes to an end.

Yellen was presiding over her final meeting, and the Fed’s post-meeting statement will be released at 2 p.m. Wednesday afternoon.

“They’re not going to raise rates this time around. They do want to at least confirm the market’s expectations for a March rate hike,” said Tom Simons, chief money market economist at Jefferies.

Yellen leaves the Federal Reserve after four years as chair, and in that time she began the slow process toward normalizing interest rates and shrinking the Fed’s balance sheet. Viewed through most of her tenure as a dove, Yellen began the process of reversing extreme crisis-level policy. She had previously served as vice chair to her predecessor, Ben Bernanke, and was president of the San Francisco Fed prior to that.

The Fed is not expected to take any rate action at the two-day meeting, and the market has been primed for a March hike, as well as two others later in the year. That fits with the Fed’s forecast for three interest rate increases this year. But that could change under the incoming chair, Jerome Powell, when forecasts and projections are released after the March meeting. Powell has been a Federal Reserve governor.

Economists expect few changes in the FOMC statement, but the changes Fed officials could make might be significant for market expectations.

“I think if they were to put anything that was perceived as dovish into the statement they would be reducing that [March rate hike] probability. It’s going to be a more bullish commentary about the economy and maybe include something on rising inflation expectations,” said Simons.

To really sound hawkish, the Fed may need more proof.

via CNBC

ADP Jobs Report Beats Expectations Sets Stage for NFP on Friday

The new year got off to a strong start for job creation, with businesses adding 234,000 in January, according to a report Wednesday from ADP and Moody’s Analytics.

Economists surveyed by Reuters had been looking for private payrolls to grow by 185,000.

Job creation was concentrated largely in service-related industries, which contributed 212,000 to the total.

Within that sector some of the better-paying industries showed solid gains: Trade, transportation and utilities led with 51,000, education and health services added 47,000 and professional and businesses services contributed 46,000. Leisure and hospitality services also grew by 46,000.

On the goods-producing side, manufacturing added 12,000 jobs while construction saw 9,000 new hires despite the traditionally slow month for the industry.

“The job market juggernaut marches on,” Mark Zandi, chief economist at Moody’s Analytics, said in a statement. “Given the strong January job gain, 2018 is on track to be the eighth consecutive year in which the economy creates over 2 million jobs. If it falls short, it is likely because businesses can’t find workers to fill all the open job positions.”

ADP’s latest count comes with the national unemployment rate at 4.1 percent, though wage pressures remain muted. Economic growth overall has been solid, with the Atlanta Fed projecting the economy to grow 4.2 percent in the first quarter.

via CNBC

US Commerce Secretary Says NAFTA Far from Being Completed

The efforts to renegotiate NAFTA are “far from being completed at this point,” Commerce Secretary Wilbur Ross said on CNBC Wednesday.

Ross told “Squawk Box” without being specific that some progress has been made on easier provisions, but “very little has been done on the hard issues.”

Without mentioning specific trade free arrangements such as NAFTA or the Trans-Pacific Partnership, President Donald Trump used his State of the Union address Tuesday night to talk about America turning the page “on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies.”

usdcad Canadian dollar graph, January 31, 2018

However, Trump has also repeatedly said he would pull out of the 1994 North American Free Trade Agreement with Canada and Mexico if he thought it would lead to a better deal the United States. The trade pact was negotiated by Republican President George H.W. Bush and implemented by Democratic President Bill Clinton.

“It’s definitely a possibility” that the president would exit the agreement, said Ross, a key player in the Trump administration’s bid to overhaul NAFTA. A final renegotiated deal “will either be 100 percent or zero percent” acceptable, he added. “It won’t be some percentage in between.”

At the conclusion of the sixth round of talks in Montreal on Monday, U.S. Trade Representative Robert Lighthizer warned the process was still moving too slowly on U.S. priorities.

The next series of talks are to begin on Feb. 26 in Mexico City.

via CNBC

Canadian GDP Rose 0.4 in November

The Canadian economy accelerated in November by the most in six months, with activity broad-based across a number of sectors including manufacturing and keeping the Bank of Canada on track to raise interest rates again before long.

Gross domestic product rose by 0.4 percent from October’s flat reading, Statistics Canada said on Wednesday, in line with economists’ expectations and the biggest increase since May 2017.

Growth in oil and gas extraction, and the retail and real estate sectors also contributed to November’s strength. The data saw the Canadian dollar extend gains against the greenback.

usdcad Canadian dollar graph, January 31, 2018

Economists said the report put the fourth quarter on track for about 2 percent growth. While that would be below the 2.5 percent that the Bank of Canada anticipates, it would still cap a strong year for the Canadian economy.

The expanding economy is expected to prompt the central bank to raise interest rates again in the coming months, with markets fully pricing in another hike by May. The bank has raised rates three times since last July.

With the economy operating near full capacity, the Bank of Canada does not need to see growth of 3 percent or 4 percent to keep on its tightening path, said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada.

Chandler expects the central bank to hold rates steady at its next meeting in March before raising again in April.

via Reuters

Justin Trudeau Does Not Believe US will pull out of NAFTA

Canadian Prime Minister Justin Trudeau said in an interview he does not think U.S. President Donald Trump will pull out of NAFTA, despite differences over how to update the trade pact, the Canadian Broadcasting Corp said on Wednesday.

Trudeau’s comments were among the most positive made by any Canadian official since talks started last year to revamp a $1.2 trillion treaty that Trump calls a disaster.

usdcad Canadian dollar graph, January 31, 2018

“It obviously would be bad if we canceled it, so I don’t think the president is going to be cancelling it,” Trudeau told the CBC in an interview recorded on Tuesday. The CBC released excerpts on Wednesday.

Trudeau also told the CBC that Canada has multiple contingency plans in the event Washington does announce it plans to withdraw. The Trump administration is demanding big changes to the pact, and this has caused tensions with Canada and Mexico.

Trump’s trade chief, speaking in Montreal on Monday after the sixth of eight rounds of talks, rejected proposals for unblocking the negotiations but promised to seek quick breakthroughs.

Foreign ministers from the United States, Canada and Mexico will meet in Mexico City on Friday to discuss the talks and other issues, the Canadian government said on Wednesday.

via Reuters

US Treasury Secretary Urges Congress to Raise Debt Ceiling

Treasury Secretary Steven Mnuchin on Wednesday called on the Republican-controlled Congress to lift the U.S. debt limit “as soon as possible” so the government can pay federal employee benefits and other obligations.

In a letter to congressional leaders and key committee chairmen, Mnuchin said the Treasury Department would continue to suspend payments into federal employee retiree, health and disability funds through Feb. 28.

Congress must raise the nation’s debt ceiling to avoid a government default. The nonpartisan Congressional Budget Office has estimated that the U.S. Treasury would exhaust its borrowing options and could run out of funds to pay its bills by late March if lawmakers do not act.

The request comes as Congress is already wrestling with federal spending for the current fiscal year and faces the possibility of another government shutdown, with approved funding due to run out on Feb. 8.

Thanks to deep partisan divisions and intraparty squabbles, lawmakers have passed a series of short-term funding bills since the fiscal year that began last Oct. 1 but have been unable to agree on spending for the rest of that year, which ends Sept. 30. The government shutdown earlier this month for three days when Republicans and Democrats failed to find common ground.

via CNBC

Dollar Weaker on Shrinking Central Bank Divergence and US Trade Stance

A persistently weak dollar is confounding currency traders and roiling global financial markets.

Investors across asset classes are feeling the effects of the buck’s rocky start to the year, with the ICE U.S. Dollar Index DXY, -0.06% a measure of the currency against six major rivals, dropping 3.5% in the year to date, adding on from its 10% loss last year. Last week alone, the buck dropped 1.7%.

So what’s been driving the dollar? Here are the two main culprits:

Central bankers and the new gang at the Federal Reserve

Central bank policy is thought to be one of the biggest drivers of currencies, so the Fed’s hawkishness and expectations for three rate increases in 2018 seem to contradict the buck’s soft performance. But it might be a case of the grass being greener on the other side. of the pond.

“The market thinks it knows what the European Central Bank is going to do and it’s nervous about the Fed’s new regime,” argued Steven Englander, head of research and strategy at Rafiki Capital Management.

The ECB is lagging behind the Fed in ending its quantitative easing program and raising interest rates, but hawkish expectations paired with strong economic data have made the shared currency more attractive, allowing it to strengthen versus its U.S. rival.

via MarketWatch