Traders Focus on Data After A Week of Politically Driven Trading

Optimism over the improved political situation in Italy and a rebounding UK manufacturing sector overshadowed trade war concerns and Spanish political uncertainty, to push the FTSE higher. The FTSE briefly rebounded back above 7700, although with insufficient strength to remain above that level into the close or ensure a gain across the week.

Spain’s vote of no confidence brings stability to Ibex

European politics have been in focus throughout this week and today was no different. Whilst political risk in Italy has receded substantially with the with the formation and approval of a populist coalition government, risk was on the increase in Spain. 

A vote of no confidence ousting Prime Minster Rajoy has seen Socialist leader Pedro Sanchez take the reins, but contrary to expectations the market has responded well to the move with the IBEX up over 1.6% heading into the close, leaving weekly losses at 2.1%.

UK manufacturing rebound but not convincingly

UK manufacturing bounced back after hitting a 17-month low in the previous month. The manufacturing pmi beat expectations of 53.5, hitting 54.4. 

Yet whilst the headline figure is, on the surface encouraging, when we delve a little deeper, suddenly the rebound in manufacturing is far from convincing. Much of the increased activity came from producing goods that increased unsold stock – rather than completed orders. 

New orders slipped to the lowest level in 11 months. Even so the pound chose to focus on the positives and charged higher, moving towards the weekend with 0.4% gains on the day.

US jobs reports lifts Wall Street

In the US, economic data in the form of non-farm payrolls distracted investors from growing trade war fears following Trump’s levying of trade tariffs on the US’s closest allies. The jobs reported showed a stronger than expected 233,000 jobs were created in May, whilst unemployment unexpectedly slipped to a multi decade low of 3.8%. 

Average wages also surprise to the upside, growing 2.7%, ahead of the 2.6% forecast. Stocks on Wall Street and the dollar rose following the report. 

This report will have cemented the June rate rise and the better than expected wage element to the report will have pleased the Fed, however the fact that the dollar on rose marginally following the report suggests that traders are dubious as to whether 2.7% wage growth is sufficient to encourage steeper path of rate rises across the remainder of the year.

US Manufacturing data and construction numbers have also added to the glowing view on the economy. US manufacturing increased by more than expected last month whilst construction spending grew by the most since 2016. 

However, these surveys were carried out before Tump’s most recent announcement on trade tariffs, so while there was just a fleeting mention of trade tensions in these surveys, if trade tensions continue the way they are going we can expect a hit on data in the coming months.