May to Delay?
The UK PMI manufacturing index declined to 52.0 for February from a revised 52.6 previously and in line with consensus forecasts. Brexit uncertainty and preparations continued to have a big impact with further very strong inventory building of raw materials.
Sterling overall continued to correct lower with a lack of incentives for further buying. The Euro moved back above the 1.1620 level while the UK currency dipped to lows below 1.3200 against the firm Dollar. Although remarks had suggested an uncompromising stance from EU Chief Negotiator Barnier, reported comments after the European close were more positive with the offer of further guarantees that the backstop would be temporary. Former Brexit Secretary Dominic Raab, who quit the government in November, suggested any delay to Brexit would reward the EU for its “intransigence” and reduce the chances of getting a deal.
Some evidence of softening parliamentary opposition to the Withdrawal Agreement supported Sterling this morning as it moved back above 1.3200 against the Dollar.
The Dollar dipped lower following manufacturing releases and, against the Euro, briefly pushed above the 1.1400 level, but the single currency was unable to hold above this level as the US currency regained ground.
Delayed US inflation data had little impact with the core PCE price index increasing 1.9% in the year to December, unchanged from the previous reading, although personal income declined for the first time in three years. There was a downward revision to the PMI manufacturing index with a reading of 53.0 from the flash reading of 53.7, the weakest since August 2017. The ISM manufacturing index declined to 54.2 for February from 56.6 which was below consensus forecasts of 55.5 and the lowest reading since November 2016. There was a slowdown in new orders growth to 55.5 from 58.2 while the prices component declined to 49.4, the lowest reading for close to three years. The University of Michigan consumer sentiment index was revised down to 93.8 from the flash reading of 95.5.
The Dollar resisted losses this morning with EURUSD around 1.1360 and GBPUSD around 1.3230.
Friday saw Eurozone CPI inflation increase very slightly, in line with consensus, from 1.4% to 1.5%. The core rate declined to 1% from 1.1% whilst unemployment held at 7.8%, the lowest reading since 2008, and German unemployment declined 21,000 for February. EURUSD struggled to build on any momentum beyond the 1.1400 level, but the momentum was solely driven by the Dollar.
Remaining concerns over an economic slowdown in the Eurozone combined with the European Central Bank (ECB) seemingly on pause for the rest of the year. Data today is relatively thin, with Spanish unemployment due early this morning. Next is the UK’s markit construction PM for February which will be of interest. Finally, the Eurozone sees the Sentix investor confidence, the producer price index and PPI numbers for February.
Data to watch:
00:30 AUD Building Permits (MoM) (Jan)
N/A AUD HIA New Homes Sales (MoM) (Jan)
09:30 GBP Markit Construction PM (Feb)