We want to break free
UK manufacturing PMI edged down to 32.6 in the final reading, a record low. Companies still expect output to recover slightly over the next 12 months, but confidence remained at historic lows, especially with overseas orders declining very sharply. Mortgage approvals declined to 56k in March, down from 74k in February and there was a sharp repayment of consumer credit with a £2.4bn repayment in credit cards; the first annual contraction on record which curbed Sterling support.
With Sterling boosted by month-end position adjustment on Thursday, investors took advantage of higher levels to sell and the Pound reversed the move. The Pound slid below 1.2500 on the Dollar and 1.1365 on the Euro. Futures market data revealed a small increase in bets against the Pound, and the markets did price in the seasonal weakening against the Dollar during May.
Risk appetite is significantly weaker this morning and there’s important unease that the UK would find it difficult to exit from lockdown measures. Sterling kicks off below 1.2450 on the Dollar as the Euro remains near 1.1365.
The US ISM manufacturing index declined to 41.5 for April from 49.1 previously and the lowest reading since April 2009, although this was above consensus expectations. New orders slumped to 27.1 from 42.2, the sharpest 1-month decline since 1951 with production at a record low of 27.5 from 47.7. Employment declined very sharply on the month to the third-lowest reading in history and prices also declined at a slightly faster pace. There was a further sharp lengthening in supplier delivery times which was important in pulling the headline figure higher and the underlying figure was much weaker.
The dollar overall was resilient after the data amid renewed defensive demand and commodity currencies moved lower.
CFTC data recorded a small decline in long non-commercial positions, but the overall stance will limit the scope for single-currency gains unless there is strong investor demand. The dollar secured renewed demand this morning as risk appetite remained weaker and commodity currencies dipped with the Euro declining to 1.0930 against the USD.
In its latest bulletin, the ECB reiterated its stance that Eurozone GDP could possibly decline as much 15% for the second quarter with a protracted and incomplete recovery thereafter. There was, however, a risk that the economy would not regain 2019 levels until 2022, maintaining caution over the near-term outlook.
Overall trading volumes were dampened by market holidays in many European countries, with the Euro dropping off during the US trading session on Friday. As of writing the common currency trades around the 1.0935 level and the Dollar.
The German Markit Manufacturing PMI is due this morning and is forecasted to have remained unchanged at 34.4. A below-50 reading indicates contractions. A better than expected reading could well push the Euro back searching towards the 1.10 figure.
Data to watch
EUR – Economic Forecasts