Growth in Britain’s construction sector slowed last month for the first time since September, as we saw weaker growth in house-building combined with a fall in commercial building and stagnating infrastructure work. The UK Construction PMI survey slipped to 52.2, after hitting a five-month high in November. This figure was slightly below forecast and set the Pound up for a tough day at the office. GBPUSD dropped below 1.3500 for the first time this week and headed towards a weekly low against the Euro. However, new orders for construction projects grew at the fastest rate since May 2017 and purchases of materials rose by the most in 2 years which bodes well for future growth.

In Europe, Germany’s unemployment rate fell to a record low as the number of people out of work slid for a sixth month on the bounce. This reflects a boom in Europe’s largest economy and investors will be hoping this kick-starts an increase in wages and inflation. The jobless rate was 5.5% in December, and the previous month’s figure was revised.

Manufacturing in the US accelerated to its best year since 2004. December’s main ISM index provided an upside surprise, at 59.7, against consensus estimates of 58.2 (November 58.2). The new orders component picked up to 69.4 from 64.0 (a near 14-year high), but the employment component fell back to 57.0 from 59.7, perhaps important in the context of the jobs data on Friday. The big picture though is that the US manufacturing sector remains robust, as indeed it does in most other economies. In a separate release, November’s construction spending rose by 0.8% (consensus +0.5%), though October’s figures were revised down.

The Dollar performed well throughout yesterday afternoon following the strong manufacturing data and ahead of the main event. The minutes of the 12-13 December FOMC, at which the Fed enacted a 25bp rate hike taking the Federal funds target rate to 1.25-1.50%, were published last night. They provided few specific new policy steers, showing the Fed still in contemplating mode on the relatively low inflation readings of 2017 and on the likely impact of tax reform proposals. Indeed, the minutes pointed out that while participants generally saw the risks to the economic outlook as roughly balanced ‘they agreed that inflation developments should be monitored closely’. On tax reform, the minutes flagged the possibility that expectations of the reforms may have already raised consumer spending whilst ‘many’ participants judged that the proposed changes in business taxes would likely ‘provide a modest boost to capital spending’. Overall, there are no major new steers on policy for the months ahead. Furthermore, with Fed Chief Yellen’s term as Fed Chair expiring in February with Jay Powell set to take over alongside other personnel changes, there are a number of moving parts for Fed policy at this time, reducing the significance of these December minutes somewhat as a source of policy information.

The day ahead

Today we have services PMI releases from the UK and the Eurozone (revised numbers). These are expected to remain flat across the board. But this would still be very positive, particularly in Europe’s second-largest economy, France, where they were recorded at a 60.0 figure in November. The UK also releases mortgage approvals and consumer credit figures. This afternoon the US publishes ADP employment figures, jobless claims and shortly afterwards, services PMI data.

Thought of the day

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