March Private Sector PMIs out of the Eurozone, the UK and the US in Focus

Earlier in the Day:

It was a busier start to the day on the Asian economic calendar this morning. The Japanese Yen was in focus, with prelim private sector PMI numbers for March in focus.

Outside of the numbers, updates on the coronavirus and government action, or in some cases, inaction, were the key drivers. The U.S failure to push through the Coronavirus Bill on Monday continued to weigh on the dollar going into the Asian session.

While inaction from Capitol Hill weighed on the Dollar, however, there was support for riskier assets from the FED’s latest move. On Monday, the FED pledged asset purchases without limit along with a move into corporate bonds. The FED also pledged a $300bn program to support credit flows to businesses and further credit support for large companies.

For the Japanese Yen

The prelim March Manufacturing PMI fell from 47.8 to 44.8, with the Services PMI falling from 46.8 to 32.7.

According to the March Markit Survey,

Manufacturing Sector

• The manufacturing sector saw its sharpest contraction since April 2009.
• Production slumped at its fastest pace since the wake of the 2011 Tsunami.
• Low orders from home and abroad led to the demand for goods falling at the steepest rate in 11-years.
• Employment fell in March, reversing a pickup in hiring in February.

Services Sector

• It was the lowest reading for the services sector since data collection began in Sept-07.
• New business intakes came to a standstill, with the spread of the coronavirus also leading to cancellations of orders.
• Firms also cut headcounts, with employment falling at the sharpest pace since Oct-15.

The Japanese Yen moved from ¥110.762 to ¥110.684 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.56% to ¥110.61 against the U.S Dollar.

Elsewhere

The Aussie Dollar was down by 0.94% to $0.5893, with the Kiwi Dollar also up by 0.94% to $0.5774.

A lack of stats for the Aussie Dollar brought Markit Survey March private PMIs into focus that would normally be brushed aside.

While service sector activity took a hit in March as a result of containment measures to tackle the virus, the manufacturing sector returned to expansion.

According to prelim figures, the Manufacturing PMI rose from 49.8 to 50.1, while the Services PMI slid from 48.4 to 39.8.

While that’s good news from the manufacturing sector, it’s bad news from an RBA perspective. The RBA continues to rely on consumer spending and a marked contraction in service sector activity doesn’t bode well.

In the equity markets, the ASX200 was up by 2.26%, with the Nikkei up by 4.6% in early trading. The HK and China markets had yet to open.

The Day Ahead:

For the EUR

It’s a busy day on the economic calendar. March prelim private sector PMIs are due out of France, Germany, and the Eurozone.

These will be the first meaningful March figures that will give the markets a sense of how much impact the virus has had on the Eurozone economy.

While the markets may be desensitized to a certain degree of contraction, sub-35 levels would be a shock…

Outside of the numbers, expect the latest coronavirus numbers and government plans to deliver support to also be in focus.

The PMI numbers may jolt some member states into action…

At the time of writing, the EUR was up by 0.73% at $1.0804.

For the Pound

It’s a busy day ahead on the economic calendar. March prelim private sector PMIs are in focus this afternoon. Later in the afternoon, March CBI Industrial Trend Orders will also provide direction, though the service sector PMI will be key.

While the focus will be on the all-important Services PMI, expect any particularly dire Manufacturing PMI numbers to weigh.

The BoE delivered support last week and stands ready to do more alongside the British government should the need arise.

The BoE may wish stand pat for now, however, to assess the effects of monetary and fiscal policy support in the coming months. The reality is, however, that the BoE may need to continue being seen to deliver in order to calm the markets.

The real issue, near-term, remains the speed at which the virus continues to spread. Relative to its peers, the UK has fared relatively well. It is early days though and the UK only just invoked stricter containment measures…

At the time of writing, the Pound was up by 0.44% to $1.1593.

Across the Pond

It’s also a relatively busy day ahead on the U.S economic calendar. Key stats due out later today include prelim March private sector PMIs and February new home sales figures.

Expect the market focus to be on the Services PMI that will reflect the effects of the spread of the virus across the EU and the U.S.

It’s less a question of whether the private sector will contract and more about by how much.

The service sector had already contracted back in February, so avoiding sub-40 levels and figures similar to those seen in China would be a plus.

In reality, however, it’s going to be the April numbers that are likely to be particularly dire. More stringent containment measures continue to be imposed late in the month. That suggests downward revisions from prelims next week and doom and gloom for April.

We won’t expect new home sales to have a material impact this time around. March and April figures will garner plenty of interest, however. It is plausible for the housing sector to grind to halt as the government forces the closure of non-essential businesses. Prospective homebuyers will also be unable to move freely, which will further slow activity.

The Dollar Spot Index was down by 0.46% to 102.011 at the time of writing.

For the Loonie

It’s a particularly quiet day ahead on the economic calendar, with no material stats due out later today to provide direction.

On the policy front, parliamentary debate and vote on a coronavirus aid package will garner plenty of attention.

Crude oil prices and market sentiment towards demand the economic outlook will continue to influence.

An OPEC collaboration with the U.S on cutting production to bring about price stability was briefly positive on Monday. The positivity didn’t last, however, leaving the Loonie on the back foot going into mid-week sessions. It remains to be seen whether there will be any agreements to curb output…

The Loonie was up by 0.23% at C$1.4460 against the U.S Dollar, at the time of writing.