Morning

We knew it was coming and slowly but surely the data is confirming what the BoE has feared – the UK economy is slowing down and contracting. Services PMI for April was published yesterday showing a fall from 53.70 to 52.30 brought about by a decline in both manufacturing and services. The fall comes as the uncertainty over the EU referendum continues to bite into the UK economy. Rest assured things will get WORSE before they improve. Firms are suspending spending and hoarding cash until after the referendum. While the referendum is on everyone’s minds, what I mentioned yesterday is also having a significant effect locally, China growth (or not) and the US FED decision.

In addition we also saw the introduction of the new National Living Wage (came into effect 01 April) and changes to the UK’s tax regime. As a result of this triple whammy (NLW, EU Referendum and global growth concerns) firms have simply stepped back and slowed hiring, spending and investment until such time sentiment changes. This slowdown will see the UK’s GDP numbers collapse with one UK bank predicting Q2 UK GDP at 0.00 (+0.4% Q1 2016). Is it any wonder then the BoE have made it clear they are not prepared to raise UK interest rates any time soon.

The inevitable fall in the value of the GBP has taken a firm grip (as you can see from the table above). The euphoria that saw the GBPUSD rise to over 1.47 was short lived and we are unlikely to see those levels again until AFTER the referendum when the hope is the UK electorate will vote to STAY and the feel good factor will see the GBP rise strongly on the financial markets.

Needless to say, between now and then you had better strap yourself in and hedge yourself because the likelihood is we “should/could” see the GBP weaken heavily vs our major trading partners (US and EU). No one ever said it was going to be easy J

Later today (1.30pm) we hear from the US how NFP for April faired. Economists are looking for a rise of between 202k (low side) to 250k (high side) after March’s print of +215k. NFP is usually a lottery but if you read what President Obama had to say last night about closing the loopholes on tax evasion following the publication of the “Panama Papers” I hazard a guess US corporates are going to feel the heat and get out the kitchen. The Papers were a real eye sore and proved once again how important it is for banks and other financial services to adhere strictly to Customer Due Diligence and avoid financial products that give rise to Money Laundering.

If the number does indeed prove to be a healthy one (in excess of 215k) you will probably see a continuation of the recent USD rally, but that rally will run out of steam with profit taking and it being a Friday traders trimming their positions.

Be safe, Be lucky and let’s be careful out there

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