Euro Weekly 6 April 2018
At the end of last week, gross domestic product data from Britain showed the economy expanding by 0.4% in Q4 and by 1.4% in calendar 2017. Those numbers met expectations but UK mortgage approvals fell by more than forecast. This short week after the Easter break didn’t bring much in the way of good news. On the plus side, the UK manufacturing sector purchasing managers’ index came in at 55.1 for March, a tick higher on the month and ahead of the forecast 54.7. On the other hand, Britain’s construction sector purchasing managers’ index dropped into the shrinkage zone. Britain’s construction PMI does not usually move the pound. However, at 47.0 the index was nearly four points below forecast and three points into the contraction zone and this had an impact on the pound. To an extent the weak figure was a result of the beasts from the east which made March chillier than normal. However, the report also noted that civil engineering work fell at its “sharpest pace for five years”. The heavy snowfall was also the reason given for the fact that, according to the Markit / CIPS purchasing managers’ index, activity in the services sector fell to 51.7 in March, down from 54.5 in February. Chris Williamson, chief business economist at IHS Markit, described this as “the weakest increase in business activity since the Brexit vote amid widespread disruptions caused by some of the heaviest snowfall in years.” Services represent the UK’s largest economic sector, which is why the figures are seen as important. While the result may have given initial disappointment, the number is still above 50, which suggests market expansion, and the disruption due to snow suggests this drop may not be an industry trend.
In contrast, Europe produced a raft of positive stats, but they seemed to have little effect on the currency. Seven European PMI figures averaged 56.4 and Euroland as a whole scored 56.6. Switzerland was four points lower on the month but still managed 60.3. Another mixed message came from the consumer price index measures from France – six of them – which put inflation anywhere between 0.9% and 1.7%. Euroland core inflation slowed to 1.0%, it was announced this week.
The slap of tariffs echoed around the world last weekend. China responded to Trump’s duties on Chinese steel and aluminium with taxes of its own on American goods. Investors expressed their concern on Monday by marking down US equity prices, especially the big technology stocks which have specific problems of their own. That concern seemed not to extend to currencies. Both sides are still adamant that they are not seeking a trade war, but there seems no end to the impasse currently. There have been a few ecostats out this week, and not all of them good news for the greenback. America’s main services sector PMI failed to meet expectations. PCE inflation in the States was on target at 1.6% but the three US purchasing managers’ index readings all fell short of target. US personal consumption expenditure – the inflation measure watched most closely by the Federal Reserve – came in at 1.6% as predicted. All eyes will be on the nonfarm payroll data due out later today as a key measure of economic performance.
While disappointing figures were appearing elsewhere, the Canadian manufacturing PMI managed to match analysts’ forecast. However, more focus will be placed on employment data due today.
The Aussie dollar was helped by an improved and on-target AiG manufacturing PMI. It was five and a half points higher on the month at 63.1. Nobody was surprised that the Reserve Bank of Australia kept its Cash Rate unchanged at 1.5% and offered no prospect of any change in the foreseeable future. In Australia the 0.6% monthly increase in retail sales looked okay, while the 6.2% fall in building permits very much didn’t. In New Zealand, milk prices fell for the third successive month even as domestic production declined, yet the Kiwi came out as the top performer on the day on the announcement.
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