Market Report - 01/03/2024
UK Manufacturing slows in February ; Market awaits US data
As previously reported, the Red Sea conflict greatly disrupted the supply chain for UK industries last month, and this morning's latest PMI release showed another decline in manufacturing activity.
This morning’s data showed that February saw another decline in UK manufacturing output; which was the twelfth consecutive monthly decline. Last month also saw a decline in new orders, output, employment. Since shipping companies have recently been bypassing the Suez Canal and choosing the lengthier route around southern Africa, some of them started looking for alternative suppliers in more expensive markets closer to home. Additionally, demand remained poor as new order intakes declined at the quickest rate since October last year.
Overall, the S&P Global UK manufacturing PMI, which measures activity in the sector, rose to 47.5 in March, up from 47.0 in February. That’s better than the flash estimate of 47.1 recorded last month, but still shows the 19th consecutive monthly drop in activity across the sector.
Moving across to the continent, Eurozone inflation has dropped to 2.6%
Following the EU CPI data released this morning; we were made aware that the eurozone inflation rate last month was more stubborn than anticipated, however it still scored lower than the previous month’s reading of 2.8%. This could in theory dash expectations of early interest rate reductions from the ECB, although it is still widely expected that they will be the first central bank to look at quantitative easing / expansionary policy.
According to recent data from Eurostat, the annual consumer price inflation in the euro area decreased to 2.6% in February from 2.8% in January. This brings the inflation rate in the eurozone closer to the stated target of 2%, although it was higher than the 2.5% that analysts had predicted.
The reaction from the FX markets to this morning’s data releases have been relatively minimal, with most of the major currency crosses trading within a similar range to the rest of this week. GBP/EUR has continued its tame trading week, with a daily range of 26bps from low to high being noted today. Further volatility is to be expected as we enter the new month with EU PMI figures, EU GDP data and a host of UK labour market releases all due next week. Should there be further contraction in the eurozone services sector, it could be a pre-cursor for further euro weakness, which may propel the rate back into the 1.17’s. At the same time, should GBP data underwhelm markets & EU data spring an upside surprise, we could test the support levels on GBP/EUR of 1.1646.
Lastly, looking at the US - GBP/USD continued to slide and closed Thursday's trading session in the negative for the second day running. The pair is still firmly above 1.2600 in the early hours of Friday, but the technical picture does not yet suggest that rebound momentum is building.
The Dollar Index ended Thursday's trading day higher, despite significant swings in response to the Personal Consumption Expenditures (PCE) Price Index. This was bolstered by a calming risk environment and cautionary remarks from Federal Reserve (Fed) policymakers over the policy reversal.
Next on the agenda for USD traders will be this afternoon’s release of US ISM survey data for the Manufacturing industry; as well as several speeches from FOMC members and Consumer Sentiment data from the University of Michigan. Market makers will be keeping a close eye on these data releases for fresh impetus on USD pairs.
With the above in mind, please feel free to get in touch should you have an immediate requirement that requires a quote; or if you would like further information