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U.K. Manufacturing Growth Surges to Fastest in Three Years

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  • U.K. Manufacturing Growth Surges to Fastest in Three Years

U.K. manufacturing unexpectedly grew at the fastest pace in three years in April as the domestic market strengthened and the pound’s depreciation boosted exports.

A measure of factory conditions rose to 57.3 from 54.2 in March, according to IHS Markit’s Purchasing Managers’ Index. That’s far better than the 54 forecast by economists in a survey and above the 50 level dividing expansion from contraction. Growth in new orders and exports also gathered pace.

The pound rose immediately after the survey was released, before paring its advance, and was little changed at $1.2894 as of 10:40 a.m. London time.

Markit’s report reinforces the view that exporters are in what Bank of England Deputy Governor Ben Broadbent has called a “sweet spot,” since the currency’s decline has increased competitiveness, while the U.K. still enjoys free trade with the EU’s single market. But while the better factory numbers are a good start to the second quarter, sterling is also fueling inflation, and the consumer side of the economy is weakening.

The drop in the pound “helped manufacturers take full advantage of the recent signs of revival in the global economy, and especially the eurozone,” said Rob Dobson, senior economist at IHS Markit. “The big question is whether this growth spurt can be maintained.”

Much of the economy’s performance will depend on the services sector. It posted its weakest performance in two years in the first quarter, when the pace of overall economic growth slowed by more than half. A gauge of services from Markit due Thursday is forecast to decline to 54.5 in April from 55 in March.

The factory survey also highlighted the mixed effects of the pound’s decline since the vote to leave the EU. Factory price pressures remained elevated last month, with input costs above their long-run average. As that feeds through to inflation, that means workers are facing a drop in real incomes this year, undermining their spending power.

Consumers are also facing double uncertainty from Brexit negotiations and a general election after U.K. Prime Minister Theresa May called an early election for June to try to strengthen her hand in the talks with the EU.

George Buckley, an economist at Nomura in London, said the improvement in the latest factory PMI was a “remarkable achievement in the face of Brexit uncertainty,” though he noted that sharp moves in the measure have typically reversed the following month.

“Clearly the U.K. manufacturing sector is deriving some benefit from the export side,” he said. “While we continue to think that weaker consumption and investment spending will take its toll on economic growth as the year develops, this morning’s PMI points to ‘stronger for longer’ than we thought.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market.

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Investment

Barclays Tell High Net Worth Investors to Shun Africa and Other Emerging Economies

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Barclays to High Net Worth Clients, Stay Off Africa and Other Emerging Economies

Barclays, one of the world’s largest investment banks, has started advising high net worth clients to stay off Africa and other emerging economies.

According to Barclays, despite the recent recovery noticed in emerging-market stocks, investors are better off avoiding the risks that still abound in emerging nations. Barclays Plc, however, advised high net worth clients to focus on U.S equities despite the S&P’s breakneck rally.

The investment bank said emerging economies do not have enough fiscal buffers to spend their way out of the COVID-19 pandemic and will likely continue to struggle in the near-time compared to the US with 12 percent of gross domestic product fiscal-support.

It said the huge US stimulus may halt rebound in emerging-markets stocks as more money is expected to flow into the world’s largest economy and its European counterparts.

“Compared to the U.S., emerging-market economies appear more vulnerable,” said Haider, the London-based managing director and head of global growth markets. “Their central banks have less room to maneuver, their governments may not be able to provide unlimited support and equity markets, given their sector mix, can be more challenged by an economic slowdown.”

Barclays added that even after 33 percent rebound in stocks of emerging markets since the panic selloff subsided in March, stocks are still down by 9 percent from year-to-date while the US S&P 500 stocks are up by 45 percent. Presently, their stocks trading at a 36 percent discount to US stocks, up from 25 percent three months ago.

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Economy

Crude Oil Rises to $43.1 Per Barrel on Production Cuts Extension

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  • Crude Oil Hits $43.1 Per Barrel Following OPEC’s Production Cuts Extension

Brent crude oil, against which Nigerian oil price is measured, rose by 1.25 percent on Monday during the Asian trading session following OPEC and allies’ agreement to extend crude oil cuts to the end of July.

OPEC and allies, known as OPEC plus, agreed to extend production cuts of 9.7 million barrels per day reached in April to July on Saturday.

In the virtual conference, delegates agreed that members, including Nigeria and Iraq presently struggling to attain a 100 percent compliance level must keep to the agreement or be forced to do so in subsequent months.

Nigeria, Iraq and others failed to keep to the cartel’s agreement in May after reports show that Nigeria only managed to attain a 19 percent compliance level during the month while Iraq struggled to attain just 38 percent in the same month.

Russia and Saudi Arabia, the two largest producers of the group, warned members to stick to the agreed quota if they want to rebalance the global oil market.

While the errant producers such as Iraq and Nigeria have vowed to reach 100% conformity and compensate for prior underperformance, we still think they will likely continue to have some commitment issues over the course of the summer,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

The potential return of Libyan output could also cause considerable challenges for the OPEC leadership.

Earlier on Monday, Brent crude oil hits $43.1 per barrel, more than a month record-high, before pulling back slightly to $42.83 per barrel.

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Gold Dips by 2 Percent on Better Than Expected Job Report

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  • Gold Dips by 2 Percent on Better Than Expected Job Report

Gold prices declined by 2 percent on Friday following a better than expected US non-farm payroll report.

The report showed an increase of 2.5 million payroll numbers against a decline of 7.5 million predicted by many experts.

The surprise number boosted investors’ confidence in US recovery as many dumped their haven investment (gold) for the stock market.

“We had significantly stronger-than-expected U.S. payroll numbers – an increase of 2.5 million versus an expectation of a decline of 7.5 million – that 10-million swing has brought forward expectations of the economic recovery in the United States,” said Bart Melek, head of commodity strategies at TD Securities.

Spot gold immediately declined by 1.9 percent per ounce to $1,678.81 while the U.S. gold futures slid 2.6 percent to settle at $1,683.

Gold was also being pressured by stronger yields and a slightly firmer dollar, “meaning the opportunity cost to hold gold in the portfolio has gone up,” Melek added.

The surprise didn’t stop there, US Dow Jones was up 614 points despite the protest going on the US and US-China tension.

Also, NASDAQ rose by 29 points while the S&P index added 50 points increase.

Note: Investors generally increase their investments in gold and other haven assets during a crisis to avert risk exposure and do the opposite once they sense a better economy.

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