Sterling cautious on trade mandate release
UK manufacturing PMI produced a 10 month high in February and returned to expansionary territory. The services sector PMI slowed to 53.2 from 53.9 and the overall composite index held at 16 month highs of 53.3. Orders growth improved but the first signs of covid-19 related stress was seen as manufacturers faced supply-chain difficulties. The Pound got some support from the data but global trends dominate.
Sterling pushed near to 1.2970 as the Dollar faltered but failed to gain against the Euro. Futures market data recorded an increase bets on Sterling rising to near 30,000 contracts, not far from 2 year highs, maintaining sell-off risk if sentiment sours. The UK is slated to release the negotiating mandate for UK/EU trade talks on Tuesday and caution surrounding talks will likely maintain cautious Sterling sentiment. The Euro held near 1.1955 at market open and the Dollar starts below 1.2950.
The US PMI manufacturing index declined to a 6-month low of 50.8 for February from 51.9 the previous month and below consensus forecasts. There was also a sharper downturn for services to 49.4 from 53.4 previously and the lowest reading since October 2013. New orders declined for the first time since the current series started in October 2009. Employment increased at a slower pace while pricing pressures eased slightly. Manufacturing activity was undermined to some extent by supply-chain issues due to the coronavirus outbreak. Regional business surveys had indicated robust readings for the month which increased the PMI surprise element and hence the dollar moved notably lower against the Euro.
The flash German PMI manufacturing index strengthened on Friday to 47.8 for February from 45.3 and above consensus forecasts of 45.0. The Euro-zone manufacturing index strengthened to a 12-month high of 49.1 from 47.9 as orders declined at the slowest rate for 15 months. There was a small improvement in the services index to 52.8 from 52.5 with the composite index at a 6-month high.
ECB Chief economist Lane stated that his best case for the coronavirus outbreak was for a V-shaped recovery. He also stated that services-sector growth and manufacturing stabilisation are sources of some optimism. As of writing, the Euro trades at 1.0820 against the Dollar.
Data to watch
09:30 – EUR – German IFO Business Climate
18:30 – GBP – MPC Member Haldane speaks