UK Construction PMI figures strengthened to a 14-month high of 52.6 in February, easily beating the 49.9 forecasted. Significantly, new orders increased and the residential sector continued to improve, benefitting from reduced political uncertainty. Mark Carney’s Treasury Select Committee testimony stated that that the bank’s role is to support the economy through an economic shock (coronavirus) that could be large, but temporary. He added that interest rates would need to rise if the bank’s January forecasts were met near term focus is on potential support measures to counteract the coronavirus impact on the economy. The markets are still convinced that interest rates will be cut on 26th March policy meeting, and after the Fed rate cut, future markets indicated a 100% chance of a cut this month.
Sterling consolidated around 1.2800 against the Dollar and the Euro moved from near 1.1441 before a retreat to near 1.1500 as a rebound in equity futures provided an some Sterling support.
In an unscheduled announcement, the US Federal Reserve (Fed) announced that it was cutting the Federal Funds rate by 0.50% to 1.25% with a unanimous vote. According to the statement, the coronavirus outbreak posed evolving risks to economic activity.
Chair Powell stated that risks to the US outlook have changed materially and that the new risks will weigh on the economy for some time. As US yields declined, the spread between US and German 10-year bonds narrowed to the lowest level since the third quarter of 2017.
The dollar moved sharply lower following the announcement with the currency index at 8-week lows while the against the Euro briefly moved above the 1.1200 level.
The Euro has pulled back from two-month highs against the Dollar, possibly tracking the recovery in the US treasury yields. The pair are currently trading at 1.1170, after hitting the highs of 1.1212 yesterday.
Markets are treating the Euro as somewhat of a safe-haven currency throughout the recent bout of coronavirus-led risk aversion. Significantly evident in the pairs surge from the lows of 1.0788 to 1.12 in just eight frantic-led trading days. If risk sentiment improves however, we could likely see single currency weaken, allowing for a notable pullback.
On the data front, German and Eurozone retail sales and final German and Eurozone PMI readings will today but major moves on the back are unlikely.
Data to watch
09:30 - GBP - Final Services PMI
13:15 - USD - ADP Non-Farm Employment Change
15:00 - USD - ISM Non-Manufacturing PMI
15:30 - USD - Crude Oil Inventories
18:00 - GBP - MPC Member Broadbent Speaks
Posted in Daily Market News on Mar 4 2020