24 June 2021
7 mins clock icon

UK activity remains strong ahead of BoE

A hawkish tilt could push sterling higher


By Emirates NBD Research

  • The flash UK PMI pointed to one of the strongest monthly improvements in business activity since 1998, despite a slight slip to 61.7 against May's even stronger reading of 62.9. The IHS Markit/CIPS compiled survey showed inflationary pressures remained elevated, with input costs matching a previous record increase from June 2008. Prices charged by firms rose by the largest amount since these records began in 1999, as disruption to supply chains caused a squeeze on components. The survey showed hiring rose by a record amount in June, but many firms were unable to operate at full capacity because of staff shortages. The lack of job candidates pushed up wages. The flash PMI for the services sector also dipped to 61.7 in June from 62.9 in May. The index for the manufacturing sector fell to 64.2 from 65.6. Sentiment about the economic outlook, while still positive, fell to its lowest in five months
  • The flash Eurozone Composite PMI jumped to 59.2 from 57.1, its highest reading since June 2006. The survey compiled by IHS Markit pointed to accelerated vaccine rollouts and falling case numbers that are allowing restrictions to be eased and consumers to feel more confident. The flash services PMI bounced to 58.0 from 55.2, its highest since January 2018 and above the 57.8. The new business index climbed to a 14-year high of 57.7 from 56.6, an indication that momentum would continue. The June flash manufacturing PMI estimate held steady from May's final reading of 63.1. An index measuring output which feeds into the Composite PMI was up to 62.4 from 62.2. But supply side disruptions and huge demand have pushed input cost prices higher. The manufacturing input prices index rose to 88.0 from 87.1, the highest since the survey began in June 1997. The composite future output index rose to 71.6 from 70.6, the highest on record, reflecting optimism that the worst of the pandemic is behind.
  • Germany’s IHS Markit's flash composite PMI rose to 60.4 from 56.2 in the previous month, the highest reading since March 2011. The increase was driven by a strong rise in the preliminary services PMI to 58.1 in June from 52.8 in May as authorities continued to loosen Covid-19 restrictions due to falling infections and higher vaccination numbers. The flash PMI for manufacturing went up to 64.9 from 64.4 in the previous month, indicating humming factories across the country despite supply bottlenecks for semiconductors and other intermediate goods. The strong output coupled with the supply problems led to a further increase in price pressures, with rates of inflation in both input costs and output prices accelerating to record highs.
  • Atlanta Fed president Raphael Bostic said yesterday that with growth surging to an estimated 7% this year and inflation well above the Fed's 2% target, he now expects interest rates will need to rise in late 2022. Bostic said that three or four months of continued job gains should yield enough progress in the recovery of employment to consider pulling back on the bond purchases, a precursor in his view to raising rates. In other comments Fed Governor Michelle Bowman said she agrees prices are being driven by clogged supply chains and surging demand as the economy reopens, but she expects those factors to ease. However, she put no frame around when that might happen, saying that it could take some time, and would need to be closely watched as the Fed sets policy.
  • New home sales in the US dropped 5.9% to a seasonally adjusted annual rate of 769,000 units last month, the lowest since May 2020. The data from the Commerce Department showed April's sales pace was revised down to 817,000 units from the previously reported 863,000 units. The median new house price jumped 18.1% from a year earlier to USD 374,400 in May. The decline was concentrated in the populous South, where sales tumbled 14.5%. Sales, however, where higher in the Northeast and West. They were unchanged in the Midwest. There were 330,000 new homes on the market last month, up from 315,000 in April. At May's sales pace it would take 5.1 months to clear the supply of houses on the market, up from 4.6 months in April. About 76% of homes sold last month were either under construction or yet to be built. Overall sales where up 9.2% YoY in May.
  • In Turkey, central bank governor Sahap Kavcioglu reportedly pledged to protect the lira, with some new swap deals in the pipeline. Questions over the bank’s commitment to tighter monetary policy, alongside a strengthening dollar, has seen the Turkish currency slip to new record lows since Kavcioglu took office, despite a moderately more hawkish turn of phrase in the TCMB’s monetary policy statement following its latest meeting last week.
  • The IMF completed its second and final review of Egypt's stand-by loan agreement (SBA) which allows the government to draw another USD 1.7bn.  The SBA had been put in place in June 2020.  The Fund also concluded its annual Article IV consultation, noting that the authorities have responded well to the challenges posed by the pandemic. 

Today’s Economic Data and Events

  • 12:00       EU        German Ifo Business Climate Index (Jun) Forecast 100.1
  • 15:00       GB        BoE Interest Rate Decision (Jun) Forecast 0%
  • 15:00       GB        BoE MPC Meeting Minutes           
  • 16:30       US        Core Durable Goods Orders (MoM) (May) Forecast 0.70%
  • 16:30       US        GDP (QoQ) (Q1) Forecast 6.40%
  • 16:30       US        Initial Jobless Claims Forecast 380K

Fixed Income

  • Yields on the UST curve nudged higher overnight even amid healthy coverage in the 5yr auction. The move higher in yields was led by the front end of the curve with 2yr UST yields up more than 3bps to 0.2622% while the 10yr added 2bps to 1.4852%. Amid other benchmark bonds, moves were muted with bunds holding around 0.18% and 10yr gilts quiet ahead of the Bank of England.
  • Among emerging markets, Turkish 10yrs led the way. Yields on 10yr government bonds fell more than 15bps to juts above 17% overnight while South African yield fell 9bps to 9.277% and Indian bonds held steady at just over 6.015%.
  • In the regional primary market, Kuwait Finance Houes priced a USD 750m perp at 3.6%. Elsewhere, S&P affirmed Qatar Petroleum’s rating at ‘AA-‘ with a stable outlook.


  • Currency markets closed mixed with no single pairing showing a strong conviction in any moves. EURUSD at one point rose to as high as 1.1970 before fading its gains through the evening and closing down 0.12% at 1.1926. Meanwhile USDJPY endued some whipsaw moves mid-day but is persisting in its climb and has now pushed above the 111 level.
  • Sterling closed higher after some initial surges in early trading ahead of today’s BoE meeting. While the Bank is expected to leave policy generally unchanged, a hawkish tilt to its commentary could help to push sterling back above 1.40.
  • Among the commodity currencies both AUD and NZD managed to gain even as moderate Covid-19 outbreaks there have disrupted a few major cities. USDCAD closed unchanged at 1.2306.


  • Global equity markets slipped yesterday following the robust gains seen on Tuesday, with comments from Fed officials continuing to muddy the waters. While the NASDAQ managed to eke out gains of 0.1%, both the S&P 500 (-0.1%) and the Down Jones (-0.2%) lost ground. Nevertheless, the NASDAQ’s gains, driven by tech stocks, saw the index hit a new record high, recovering the losses seen earlier in the year when the rotation trade hit.
  • In Europe, stock markets closed in the red despite strong PMI readings. The composite STOXX 600 slipped -0.7%, with the DAX a key loser with a drop of -1.2%. The FTSE 100 dropped -0.2%.
  • Within the region, the DFM closed up 0.4%, the Tadawul closed flat, and the ADX lost -0.1% but remains up 32% ytd.


  • Oil prices closed moderately higher overnight with Brent futures at USD 75.19/b, up 0.5% and WTI at USD 73.08/b, essentially flat. Oil inventories in the US fell 7.6m bbl last week along with a decent draw in gasoline stocks. Production fell marginally by 100k b/d while product supplied is hovering a little below 21m b/d.
  • Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, said OPEC+ has a role to contain inflation, suggesting that he’s showing some signs of wariness in letting oil prices rise in perpetuity. The next OPEC+ meeting will be held on July 1.

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Written By


Emirates NBD Research Research Analyst

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