News & Analysis


A strong positive surprise in China’s April manufacturing PMI yesterday morning set the tone for the session as investors appetite for risk rose once again. The rebound in the soft data saw China’s manufacturing sector expand for the first time this year, soothing fears over the global growth slowdown. The US dollar broadly sold-off on this news against both emerging market and G10 currencies, with safe haven currencies such as CHF and JPY also losing out. The South African rand and British pound made the most ground in yesterday’s session against the greenback in each respective currency group. The dollars afternoon data release did little to stem the sell-off with Retail Sales falling 0.2% MoM in February and the Manufacturing PMI falling just shy of expectations at 52.4. The Retail Sales figure should be taken with a pinch of salt, however, with last month’s reading being revised up 0.5%. This shows how volatile the high-frequency data is, suggesting that February’s reading may also be subject to large revisions.


Last night saw Parliament fail to break the Brexit deadlock as another series of indicative votes bore no fruit. The closest option was the Customs Union vote which fell only 2 votes short of finding a majority. In response, Tory whip Nick Boles, who was responsible for many backbench amendments with Yvette Cooper, resigned from the Conservative party. May will now convene her cabinet for what is being dubbed “the mother of all cabinet meetings” with a constitutional crisis brewing. The assumption is that May will try and bring her divided cabinet together behind a fourth vote on her deal this week, or threaten a general election to break the impasse. With the EU already expressing their desire for clarity on Britain’s stance in advance of next week’s summit, May realistically has just this week to pass a deal or risk a long extension. Meanwhile, sterling spiked yesterday after construction data showed businesses beginning to stockpile in the event of a no-deal Brexit with the stock of purchases balance rising to its highest figure ever – 59.9. The positive surprise in the construction PMI failed to keep sterling at such high levels, however, as the nights Brexit saga sunk the pound back to recent lows.


In an environment where the dollar softens, the euro still can’t catch a break. Falling inflation measures, mainly due to the Easter effect tarnishing services inflation, doesn’t bode well for investors expecting marginal tightening by the European Central Bank in the near future. The Eurozone-wide measure fell to 0.8% YoY, with core CPI falling to 1.4% too. Despite energy inflation rising further from 3.6% to 5.3% in February, the effects of the fall in food and tobacco prices prompted the fall in the headline figure. Meanwhile, unemployment fell marginally in all major Eurozone economies except for Italy, with smaller countries like the Netherlands and Portugal also experiencing an uptick in the rate of joblessness. This morning at 10:00 BST the producer measure of inflation is released for the Eurozone with a slight uptick to 3.1% in the YoY figure expected.


WTI crude prices finally broke their 2019 range to the upside after positive manufacturing data from China and US energy companies reporting that they have reduced the number of oil rigs in operation to the lowest level in nearly a year. The move saw the most rigs cut from production in one quarter for three years. The news, coupled with the lowest output from OPEC countries in February since 2015, proved enough for the crude market to surge up to $61.80 a barrel. The crude rally saw CAD strengthen a third of a percentage point against the US dollar, a move stemmed by a fall in March’s Manufacturing PMI surprising to the downside at 50.5.