Sterling gains traction
The UK PMI manufacturing index declined to 48.0 for March from 51.7 previously, but still above consensus forecasts, although the data was distorted by longer delivery times. Services PMI (represents over 80% of the economy) dropped to 35.7 from 53.2 to an all-time low. With conferences being canceled, travel plans being abandoned, and restaurants and retailers being shut, services activity nosedived further than expected. Composite (servs and manufacturing) PMI skidded to 37.1 in March, its weakest on record, from 53 in February.
Headline CBI industrial orders index declined to -29 for March from -18 previously and business confidence declined to a 10-year low as export orders declined sharply and the underlying coronavirus impact intensified.
Speculation the Bank of England would unveil more aggressive quantitative easing measures on Thursday provided an element of Sterling support. The Pound pushed to highs near 1.1800 against the Dollar and the Euro retreated to near 1.0920 before settling around 1.0900. This morning, stronger global risk appetite has helped Sterling to trade near 1.1850 on the Dollar and Euro near 1.0940. UK data will now be released at market open and headline CPI inflation rate edged lower to 1.7% from 1.8%, the core rate at 1.7% from 1.5%.
The US PMI manufacturing index declined to 49.2 from 50.7 previously, although, as was the case for Europe, the real decline was larger given that the figure was inflated by a jump in delivery times. The services-sector index declined sharply to a record low of 39.1 from 49.4 previously with the composite output index also at a record low. There will be strong expectations of a further sharp downturn for the April data. The Philly Federal Reserve (Fed) non-manufacturing index declined sharply to -12.8 from 36.1 the previous month with a sharp decline in new orders and a small decline in employment.
There was still strong underlying dollar demand and it regained ground during the New York session, although swap spreads continued to narrow and were much lower than seen last week. After pushing to highs above 1.0880, the single currency was unable to sustain gains and retreated to below the 1.0800 level. Dollar demand eased on Wednesday as measures to boost credit had an impact and the Euro was just above 1.0800 as commodity prices rallied.
According to the March flash data, the Euro-zone PMI manufacturing index declined to 44.8 from 49.2 previously and above market expectations, although it was still the weakest reading for over 7 years.
The services-sector index declined very sharply to 28.4 from 52.6 which was the fastest monthly decline and the lowest reading on record. There was a sharp decline in orders as exports also dipped rapidly amid border restrictions. Industrial and service-sector prices declined with selling prices overall declining at the fastest pace since 2010.
The data confirmed that a deep recession was likely in the Euro-zone economy. ECB President Lagarde was reported as saying that she supported Coronabonds issuance, but EU finance ministers struggled to find common ground.
Data To watch
07:00 – GBP – CPI
07:02 – GBP – PPI Input
09:00 – EUR – German Final IFO Business Climate
12:30 – USD – Core Durable Goods Orders
12:30 – USD – Durable goods Orders