UK manufacturing PMI comfortably beat forecasts with a sharp rise to 55.1 in March, up from February’s 52.1 and the strongest reading since December 2017. Business confidence rose but Brexit uncertainty overshadowed gains in output and orders and inventories of raw materials and finished goods increased at a record pace. The data gave a tiny boost to the Pound but speculation of increased parliamentary support for a softer Brexit boosted the Pound into lunchtime. Positive sentiment faded during the afternoon’s debate, and again we saw no majority for any of the options on offer, although the Customs Union suffered only a very narrow defeat.
The Pound moved sharply lower as the deadlock continued, falling from 1.3150 to below 1.3050 against the Dollar and back to the low 1.1600s on the Euro. Cabinet will discuss the options throughout today and EU talks will also continue. Sterling has only modestly recovered this morning as we await Construction PMI data and a Brexit breakthrough.
The US Dollar was down 0.15% against its major peers at the start of yesterday. Headline US retail sales declined 0.2% for February compared with consensus forecasts of a 0.3% increase, although there was an upward revision to the previous release. Underlying sales declined 0.4% and the control group registered a 0.2% decline, although the January increase was revised up strongly to 1.7% with only marginal Dollar losses. The final PMI manufacturing index was revised down marginally to 52.4 from 52.5 and the lowest reading for twenty-one months. In contrast, the ISM manufacturing index recovered to 55.3 for March from 54.2 previously as new orders and production both recorded a faster pace of expansion. Employment also gained strongly for the month, although order backlogs increased only slightly while the prices index moved back above 50.0.
Investors’ sentiment received a boost after Caixin China Manufacturing PMI signalled growth: the headline indicator came in at 50.8 for March, the first progress in four months. New export orders also rose, and we expect improving Sino-US negotiations will ease fears of trade tensions.
Today we see February’s Durable Goods Orders and the API report on US crude oil supplies are expected later.
The European Central Bank’s (ECB) Draghi confirmed that significant monetary stimulus is still required given all the geopolitical uncertainty, which, combined with growth outlooks, means the Euro failed to gather any support. Eurozone manufacturing index declined, with downward revisions for France and Germany. Italy remained in contraction territory which only confirmed the struggle that the single currency is facing. PMI figures came in at its lowest reading for twenty-one months but there was a slight boost in manufacturing and employment.
Data today includes Swiss CPI figures, a speech by the ECB’s Praet and the UK’s markit construction PMI for March. The data is rounded off by EU producer price index (month-on-month and year-on-year) for Feb but, unsurprisingly, May’s mammoth five-hour cabinet meeting is likely to create all the headlines today.
Data to watch:
00:30 AUD Building Permits (MoM) (Feb)
03:30 AUD RBA Rate Statement (Apr)
03:30 AUD RBA Interest Rate Decision (Apr 2)
06:30 CHF Consumer Price Index (YoY) (Mar)
07:00 EUR ECB’s Praet speech
08:30 GBP Markit Construction PMI (Mar)
12:30 USD Durable Goods Orders ex Transportation (Feb)
12:30 USD Durable Foods Orders ex-Defense (Feb)
12:30 USD Nondefense Capital Goods Orders ex Aircraft (Feb)
12:30 USD Durable Goods Orders (Feb)
N/A NZD GDT Price Index