The Cure For Falling Currency And Oil

Just in time for our trip via England to Germany on Sunday, the pound sterling is up. Cable hit $1.3267 before slipping to $1.3247. It is also up against the euro.

The recovery results from the latest manufacturing purchasing managers index which went from 48.3 in July to 53.3 in August. The monthly PMI rise was the largest in the 25 years for which data exist. There were two components for the jump in demand. The domestic market for consumer products soared because after the Brexit vote, imported goods cost more. Furthermore, British manufacturers got more orders from the US, Europe, Scandinavia, and the Middle East-Africa countries, because their prices were more competitive.

There is a problem in the data, however. First of all, with sterling some up today, the price advantage is not as great as it was last month when the pound fell below $1.30. Moreover, prices are rising mainly because of the higher cost impact of sterling inputs Britain has to import. These reached new 5-yr highs. A key metric still to come is the services PMI to be published next week. But it looks like the corrective for low exchange rates is... low currency exchange rates.

Similarly, there is a conundrum in the energy sector after the Energy Info Administration reported a 1.2% rise in US oil demand in June, the 5^th month in a row to see a rise over last year, with crude imports hitting 8.92 barrels/day. Rather astonishingly, the increase was to offset heavy exports of US shale exports needed to keep up refinery production on the US Gulf Coast and in California. The cure for low oil prices is low oil prices.