The latest data on the UK construction sector was released this morning, and will likely be seen as positive overall as the recovery from the Brexit shock appears to be persisting. Despite this the FTSE 100 is under pressure this morning, trading lower by more than 50 points and down to levels not seen since the day after the US election. The pound is pretty much flat on the day, but the currency is set to end the week with another impressive set of gains as it continues to recoup some of the losses seen in recent months.
Improvement in Construction data tempered by rising inflation
The UK Construction Purchasing Managers’ Index increased to 52.8 in November, beating consensus estimates amongst analysts and surpassing the prior month’s reading of 52.6. However any over-optimism following this release should be kept in check as the strongest cost inflation seen in more than five years suggests that rising prices could begin to become a bigger problem in the not too distant future. For the short-term however, the news has been warmly greeted by investors of stocks in the property sector with Land Securities Group topping a list of gainers on the FTSE 100 whilst British Land and Barratt Developments are also in positive territory.
US jobs report and Italian referendum to drive flows into the weekend
This afternoon sees the widely viewed non-farm payrolls (NFP) report from the US released at 1.30pm (GMT). This indicator often causes heightened levels of volatility in most global markets and with large moves higher in US stocks, yields and the dollar in recent weeks the risks are certainly skewed to the downside. Expectations are for around 175k jobs to have been added last month, which would represent the highest reading since the summer, and with markets pricing in a Fed rate hike the week after next as a near certainty a bad miss could set the cat amongst the pigeons. However early indications suggest we will get another strong print with the private ADP number on Wednesday and the employment component of ISM manufacturing yesterday both coming in strong.
Sunday sees Italians head to the polls to decide on a constitutional reform package which would essentially grant more power to the lower house of government. Polls and odds amongst bookmakers suggest that the proposals will be rebuffed, and with PM Renzi going on record as stating this eventuality would lead to him offering his resignation there could be quite an impact on European markets when they reopen on Monday morning. The economy minister has stated that the referendum won’t cause a “financial earthquake”, in a clear attempt to prepare markets for a victory for “No” and mitigate the shock should this occur. The fact he feels the need to take this action as necessary, and has even gone as far as specifying a time period for how long market turbulence could last (48 hours) shows a worrying level of complacency and the comparison to the market reaction seen after the Brexit vote is a lazy generalisation. A rejection of these latest proposals by Italians will likely not be a major game changer in the future of the EU as it would see the country’s politics remain in a state of gridlock and could ultimately act as a further barrier to the nation holding their own referendum on EU membership.