In July, the contraction in manufacturing activity in Great Britain appeared to be worse that initially expected, achieving its worst value since early 2013, as Monday’s industry data states.
Market research group Markit reported that in June its British manufacturing PMI sagged to a seasonally adjusted 48.2 the previous month from a reading of 52.1.
Since 2013, it was the worst level and it came below the preliminary report issued on July 22, which had shown the PMI tumble to 49.1 in July.
On the index, a reading higher 50 points out to industry expansion, while the reading below is a clear signal of contraction.
In the report, it was indicated that the domestic market was heavily impacted by uncertainty both before and after Britain’s vote to leave the EU.
Apart from that, the market research group stressed that weaker pound exchange rates contributed to fresh export order growth.
The weakening order book trend, as well as upswing in cost inflation indicated further near-term pain for British manufacturers.
China July factory activity suddenly slumps
In July, activity in Chinese manufacturing sector suddenly eased because orders cooled, while flooding disrupted business, an official poll revealed, thus contributing to fears that China’s economy will slow in the nearer months unless the government gets down to a huge spending spree.
While a similar private poll disclosed business picked up for the first time for 17 months, the actual growth was minor and the much larger official poll conducted on Monday suggested that China's overall industrial activity is still sluggish.
Both polls demonstrated persistently poor demand at home and also abroad. As a result, companies were forced to keep shedding jobs, even as Beijing vows to shut more industrial overcapacity, which could potentially lead to huge layoffs.
As for other Monday’s readings, they pointed to signs of apparent cooling in both the construction industry as well as real estate, that were major drivers behind better-than-expected economic growth during the second quarter.
On Friday, the British pound edged lower, after the release of gloomy economic posts from Great Britain contributed to worries over the outlook for the UK’s growth following the country’s intention to break up with the European Union.
The currency pair GBP/USD achieved 1.3173 during European morning trade, the session minimum and the pair managed to consolidate at 1.3175, losing 0.42%.
Cable was about to gain support at 1.3061, which is the minimum of July 20 as well as resistance at 1.3313, the peak of July 18.
Research group Markit informed in July its flash British manufacturing purchasing managers’ index edged down to 49.1 from June’s outcome of 52.1. Financial experts had expected the index to sink to 47.8 this month.
At the same time, in July the British services PMI sagged to 47.4 from June’s result of 52.3, compared to expectations for a 48.9 drop.
The data contributed to fears over a slowdown in Great Britain’s growth as traders keep assessing the economic effects of the Brexit vote.
European banks amount to spend to maintain operations in the UK will rise sharply when UK left out of the European Union (EU), also known as Brexit, according to a study by Boston Consulting Group (BCG) was quoted by the Financial Times posted.
Specifically, according to BCG, European banks will have to spend more to 30-40 billion euros in the UK subsidiary to maintain operation after Brexit. So it means operating costs of European banks in the UK each year will increase from 8% to 22%.
The costs increase too high so more likely will lead to no less the Bank would cease some operations in Britain. Certainly, the foreign banks will encounter a lot of difficulties during the late Brexit by previous regulations, just they have a license to operate in one of the 28 member countries, they will have the freedom to operate in all the other Member States.
Hitherto, the focus of the attention of public opinion still is Bank of America, because they often consider London as a gateway to Europe. However, BCG's research report focuses on about 60 European Bank currently having one or more branches in the UK, included some of the most prominent names such as Deutsche Bank, Commerzbank, BNP Paribas, Santander, Societe Generale or some small banks like Erste, Novo Banco or Piraeus.
"Everybody says much about the Bank of America but in fact, European banks will impact more severely. In fact, Europe is not too important to the American Bank because it brings from 20 to 30% of their profits. But with European banks, UK is very important because with some banks sometimes 70% of their business activities currently housed in Britain", one of the senior researchers at BCG, Mr. Philippe Morel said.
Late Brexit, the first thing that European banks will need to do is apply for the license to operate in the UK, they had not thought of this for decades. In addition, they will also have to be bound to increase capital at the request of the governing body of the British banking industry, just like what happened in the United States.
Activities of the European Bank in Britain will be divided into operations in the UK and in Europe. As the calculations of BCG, the only German banks have to add about 10 billion euros and at least will have to increase capital by 10 billion euros. For the EU-wide banking industry, they will need to add at least 30 to 40 billion euros.
After the recovery session impressed due to the stable return of British politics as the country has a new prime minister, British pound yesterday plunged back before meeting result of Bank of England (BOE) will be announced today with the majority of analysts are predicting that the BoE will cut rates from 0.5% to 0.25% in this meeting.
However, Some analysts suppose that that cutting interest rates will be delayed until the August meeting. At present England is in the process of establishing a new government, policy makers at the BOE can to open policy until the statements related to Brexit are declared by the new government as well as impacts of Brexit for the UK economy are expressed more clearly. If BoE cut interest rates, pound will continue to plunge and set new lows. Otherwise, GBP/USD will have a strong recovery.
Canadian Dollar rose sharply yesterday after Bank of Canada (BOC) decided to keep interest rates at 0.5%. In the statement issued after the meeting, BOC expressed optimistic prospects for the Canadian economy as oil prices on world markets have rebounded. Besides, the agency said that the stability of US economy will support the growth of Canada in the remaining months of this year.
After the slowdown session yesterday, this morning Japanese yen JPY continued to decline to the 3-week low against US dollar as the market continues to expect Bank of Japan (BOJ) will enhance easing monetary policy through the expansion of bond purchase program in the meeting of the agency on 27-28th of July.
Monday, July 11th, Prime Minister Shinzo Abe announced that they will strengthen the economic stimulus measures after the landslide victory of the ruling coalition in Japan's upper house election held on the weekend. The rate increase of the majority coalition in the Japan upper house will allow policy makers to pass bigger fiscal stimulus package in a easier way. Rumors of that the Central Bank of Japan (BOJ) will increase monetary stimulus are strengthened after the yesterday meeting took place between Prime Minister Shinzo Abe and FED former chairman Ben Bernanke, who is known to be author of the giant quantitative easing programs to revive the US economy after the global economic crisis in 2008.