Equity markets in Europe had a strong session yesterday, thanks to the latest manufacturing figures from China.
An improvement in Chinese manufacturing figures from China boosted global equity sentiment round the world. The official manufacturing report and the Caixin survey both showed that the Chinese manufacturing sector posted minimal growth in March – it is a step in the right direction, seeing as it was in contraction in February. It would appear that Beijing’s attempts to stimulate the economy has worked, but it might also be because China celebrated the Lunar New Year in February.
US markets rallied too as the recovery in Chinese manufacturing boosted investor confidence. The timing of the manufacturing surveys was good, as trade talks between the US and China are going well. Talks between the two sides will continue this week, and it was reported that ‘new progress’ was made between the two negotiating teams in Beijing last week. Equity markets in Asia posted small gains overnight as the feel good factor is still going the rounds.
Sterling slipped last night after MPs voted against four alternative proposals for Brexit. The announcement weighed on the pound as it underlines the gridlock in relation to Brexit. As it stands, the UK is set to leave the leave the EU on 12 April without a deal, unless an alternative arrangement can be agreed, and as we saw last night, there isn’t much MPs agree on when it comes to Brexit.
UK manufacturing in March jumped to 55.1, which comfortably topped the 51 forecast, and was an improvement on February’s reading of 52.1. The reading was the highest in just over a year, with speculation that businesses were front-loading their manufacturing orders ahead of the UK's exit from the EU.
Things have gone from bad to worse in the eurozone. The final French manufacturing reading was 49.7, while the flash reading was 49.8, and the German final manufacturing reading was 44.1, which was a decline from the dismal flash reading of 44.7. Adding to that, the headline CPI rate for the currency bloc cooled to 1.4% from 1.5%. The core CPI dipped to 0.8% from 1%. The manufacturing sectors of the two largest economic in the euro-area are in contraction, and demand across the region is dwindling, and these are worrying sign. It is clear the EU need an orderly Brexit too.
Oil rallied yesterday, and the upward move was driven by both supply and demand. The Baker Hughes report for the last week of March, showed the number of active rigs dropped by eight, and it was the largest quarterly decline in active rigs in three years. The growth in Chinese manufacturing, albeit tiny, was an encouraging sign and that prompted buying.
The Spanish unemployment change will be revealed at 8am (UK time), and traders are expected a decline of 33,300.
The UK construction PMI report will be announced at 9.30am (UK time) and dealers are anticipating a reading of 49.8, and that would be a slight improvement on the 49.5 reading in February.
US durable goods will be announced at 1.30pm (UK time) and the consensus estimate is for a decline of 1.2%, and that compares with an increase of 0.3% in January.
EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might retest the 1.1176 area. Resistance might be found at 1.1448.
GBP/USD – has been driving higher since early December, and if it holds above the 200-day moving average at 1.2981, it might retest the 1.3380 area. The 1.2775 area region might act as support.
EUR/GBP – while its holds below the 200-day moving average at 0.8840, its outlook is likely to be negative. 0.8471 might act as support. A rally might encounter resistance at 0.8800.
USD/JPY – has been edging lower since the start of the month and a break below 109.50 might bring 108.50 into play. If the wider rally continues, it might retest the 112.00 area.