Sterling halts its advance
The Pound put the brakes on its advance yesterday after data showed British manufacturing slowed last month, the latest sign the economy may be running out of steam after its surprising resilience in the wake of last year’s Brexit vote.
The 20% tumble in the Pound since last June’s EU referendum had helped manufacturers post their fastest growth in three years in the last quarter of 2016. However, it fell back below $1.25 since data was released showing growth in the manufacturing sector slowed in the first three months of the year.
By late afternoon the Pound was down 0.8% on the day against the US Dollar. Some analysts are saying that now the formal process of Britain’s departure from the EU has been triggered, focus is returning from politics to fundamentals.
One of the areas for concern is the economic effect of Brexit on the UK’s huge current account deficit, which had grown to 7% of its GDP last year. Data last week showed that Britain’s current account deficit had almost halved as a percentage of output, and that foreign direct investment has risen to £110 billion, offering hope that one of the economy’s big vulnerabilities may be fading.
Data released yesterday from across the pond showed a slight downward revision of the final US Markit PMI manufacturing index to 53.3 from 53.4. The March Institute for Supply Management (ISM) manufacturing index declined to 57.2 from 57.7, although there was another very strong reading for orders book. There was also an increase in the prices component while the employment component was shows to be strengthening significantly on the month. This helped increase confidence in the up-and-coming payrolls report due out this Friday, with the probability that there will be an increase in manufacturing jobs.
In addition, there was a weaker than expected release for car sales in the States which triggered doubts surrounding domestic demand. The Dollar overall was unable to derive any significant support from this news.
Data released from the single market in the form of March Eurozone PMI manufacturing index was at its highest level for just under six years, which maintained confidence in the industrial outlook. Further, the Italian index strengthened to the strongest level for six years which should also provide some relief over underlying trends. Eurozone unemployment also slowed to the lowest level for eight years at 9.5%. Bond yields declined during the day despite firm PMI data, with German benchmark yields at the lowest level for over a month as bunds attracted some safe-haven support. This sapped Euro support against the US Dollar.
The South African Rand fell more than 2% yesterday to its worst level in almost three months. This came after Standard and Poor’s (S&P) Global Ratings cut the country’s credit score to sub-investment grade with a less than positive outlook following last week’s dismissal of the South African finance minister.
South African stocks were higher on the day, led by rising gold shares, as demand for the safe-haven asset rose globally in response to worries U.S. President Donald Trump will use trade to pressure China in security talks.
Data To Watch:
9:30am GBP PMI Construction Data (Mar). 1:30pm USD Trade Balance (Feb). 3:00pm USD Factory Orders (MoM) (Apr). Optional: 5:30am AUD RBA Interest Rate Decision, RBA Rate Statement.