The Pound Struggles Over Brexit, While Risk Appetite Drives the Pack

Earlier in the Day:

The week kicked off with a bang. A deluge of economic data out of Asia got the majors into action early in the day. Key stats that influenced included:

• Australia AIG Manufacturing Index (Mar)
• All Big Industry CAPEX (Q1) (Japan)
• Big Manufacturing Outlook Index (Q1) (Japan)
• Large Manufacturers Index (Q1) (Japan)
• Large Non-Manufacturers Index (Q1) (Japan)
• Australia NAB Business Confidence (Mar)
• China Caixin Manufacturing PMI (Mar)

Ahead of the Asian session, private sector PMI figures released out of China on Sunday provided support to risk appetite.

According to the NBS survey, the manufacturing sector saw growth once more. The PMI rose from 49.2 to 50.5. The service sector saw growth accelerate, with the PMI rising from 54.3 to 54.8. Both sets of figures were better than forecasted.

For the Japanese Yen,

1^st quarter Tankan survey provided further guidance on how the business sentiment stood at the turn of the year. According to the Tankan Survey figures released by the Bank of Japan:

All Big Industry CAPEX (Q1) rose by 1.2%. While coming in ahead of a forecasted 0.4% decline, the increase in CAPEX was well below the 4^th quarter’s 14.3% increase.

Big Manufacturing Outlook Index (Q1) fell from 15 to 8. Forecasts were for a decline to 12.

Large Manufacturers Index (Q1) fell from 19 to 12. Forecasts were for a fall to 13.

Large Non-Manufacturers Index (Q1) fell from 24 to 21, which was worse than a forecasted 22.

The Japanese Yen moved from ¥110.938 to ¥110.992 upon release of the figures. The deterioration in sentiment comes as the global economic outlook deteriorates amidst the ongoing U.S – China trade war. At the time of writing, the Japanese Yen was down by 0.26% to ¥111.15 against the U.S Dollar at the time of writing.

For the Aussie Dollar,

The AIG Manufacturing Index fell from a revised 54.0 to 52.0 in March, which was in line with forecasts. According to the latest AIG report, the decline was attributed to a slowing in the economy and to customers delaying orders ahead of the Federal Election.

The new orders sub-index fell by 2 points to 50.0, with the exports sub-index sliding by 4.5 points to 50.7.

The Aussie Dollar moved from $0.71102 to $0.71109 upon release of the figures, which preceded the business confidence numbers.

The NAB Business Confidence Index fell from 2 to 0 in March, which was worse than a forecasted rise to 4. According to the NAB Monthly Business Survey, in spite of confidence being on the decline, the business conditions index increased from 4 to 7 in March.

The Aussie Dollar moved from $0.71232 to $0.71220 upon release of the figures, which preceded China’s Caixin Manufacturing PMI.

Out of China,

The CAIXIN Manufacturing PMI rose from 49.9 to 50.8 in March. Coming in ahead of a forecasted 50.1, the PMI hit its highest level since Jul-18. According to the latest Markit survey:

• Employment increased for the first time in 5-years, supported by a quicker rise in both output and overall new work.
• Production rose at the quickest pace since Aug-18, supported by the pickup in overall new work.
• On a positive note, new export orders also increased following a fall in February.
• Optimism also improved, with optimism towards the year ahead rising to a 10-month high.

The Aussie Dollar moved from $0.7122 to $0.71215 upon release of the figures that reflected a first improvement in the sector in 4-months. At the time of writing, the Aussie Dollar was up 0.35% to $0.7121.

For Kiwi Dollar,

There were no material stats released through the session to provide the Kiwi Dollar with direction. Economic data out of China over the weekend and this morning together with optimism over trade talks provided support early on. It could be a choppy week, however, with a mass of data scheduled for release that could materially impact risk sentiment.

At the time of writing, the Kiwi Dollar stood at $0.6827, up 0.34% for the session.

The Day Ahead:

For the EUR

Finalized March manufacturing PMI figures out of France, Germany and the Eurozone, coupled with PMI numbers out of Italy and Spain will provide direction for the EUR.

Later on in the morning, prelim Eurozone March inflation figures will also be in focus, though barring any material pickup, the numbers will likely have a muted impact on the EUR.

Outside of the stats, positive economic data out of China provided support for risk appetite and the EUR early on.

At the time of writing, the EUR was up 0.07% at $1.1226.

For the Pound

Economic data due out of the UK is limited to March manufacturing PMI figures. While PMI will provide the Pound with direction upon release, the focus will remain on Parliament and Brexit.

Following last week’s failure to decide a path out of the EU, the markets will be looking for a plan to prevent a no-deal departure. Theresa May could look for a 4^th vote, while we are also expecting the popular alternatives of last week’s Wednesday session to also be voted on.

As a reminder,

Based on the result on Wednesday, there will likely be 3 alternatives for MPs to vote on this week:

• Second Referendum: Received the largest number of votes on Wednesday, totaling 268.
• Remain within the customs union: Saw the narrowest margin of defeat. (272 against/264 for).
• Labour Party Alternative: Received the 3^rd largest support (307 against/237 for).

At the time of writing, the Pound was down 0.10% to $1.3022.

Across the Pond

February retail sales figures and March ISM Manufacturing PMI numbers will provide direction to the U.S Dollar.

While sentiment towards the economic outlook and monetary policy has deteriorated, a heavy set of stats through the week could shift sentiment once more.

Positive retail sales figures would certainly ease concerns over a near-term slowdown and support the Dollar and Treasury Yields.

The manufacturing PMI numbers will need to hold up, however, for the U.S Treasury yield curve to avoid another inversion.

Outside of the data, progress on the U.S – China will provide support for riskier assets at the start of the week.

At the time of writing, the Dollar Spot Index was down 0.04% to 97.243.

For the Loonie

There are no material stats scheduled for release to provide direction for the Loonie. A return to expansion in China’s manufacturing sector provided support for crude oil prices early on, which is Loonie positive.

Outside of the numbers, BoC Governor Poloz will be speaking later in the day. Any dovish chatter and expect a pullback in the Loonie late on.

The Loonie was down 0.02% at C$1.3352, against the U.S Dollar, at the time of writing.