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Flash PMIs set to point to March slowdown

production line

manufacturing, industry

After seeing some decent gains over the past few days, European markets fell back, slipping away from their highest levels in a month, as brent crude oil prices moved back above $120 a barrel.

US markets also followed suit, similarly, retreating from one-month highs, for very much the same reasons, as concerns over rising prices raise the prospect of a significant income and margin squeeze on both company margins, and consumer spending power.

As we look ahead to this morning’s European open, we look set to see a modest rebound despite a slightly softer theme in Asia, ahead of the latest insight into economic activity in March, and how businesses and consumers are dealing with the challenges being posed by the sharp rise in energy prices seen over the last few weeks, with the latest flash PMI numbers, from France, Germany, the UK and US. 

After a weak finish to 2021 economic activity in Germany has picked up in the first two months of this year, with both manufacturing and services activity performing well.

This doesn’t quite chime with some of the industrial production and factory gate prices, and with input costs surging since the end of last year, one has to question how reliable some of this latest PMI data actually is. The latest factory gate prices for January showed a record rise of 25% year on year, while the same measure in Italy hit 41% in February.

This direction of travel is expected to continue for German as well as French factory gate prices and is likely to prompt shutdowns in some of Germany’s key industries, whose key export markets are in China, as well as Russia.

Its Chinese export market appear to be showing signs of slowing, while its exports to Russia have been blocked by sanctions.

It’s been a similar trend in France, an end of year slowdown followed by a pickup at the start of the year.

Yesterday we saw EU consumer confidence plunge in March from -8.8 to -18.7, and the lowest level since May 2020.

Given the extent of that drop you have to wonder whether expectations for services flash PMIs are a little too optimistic. France services PMI is expected to fall modestly from 55.5 to 55, while in Germany it is forecast that we could see a fall to 53.7 from 55.8, although it wouldn’t surprise to see an even bigger fall.

For manufacturing we can expect to see a fall to 55.1 in France and 56 in Germany.

For the UK we can also expect to see a modest slowdown in March with manufacturing expected to slow to 57, from 58, and services from 60.5 to 58, drawing a line under a decent Q1, however this is likely to be as good as it gets this year as economic activity gets squeezed in April.

We can expect to see similar modest slowdowns in the latest US flash PMIs as well, while weekly jobless claims are set to remain steady at 210k, while continuing claims are expected to fall to 1.4m.

EUR/USD – continues to find support at the 1.0960 area, with a break below 1.0950 signalling a move towards 1.0900. We need to push up through the 1.1120 area to signal a move towards the 1.1250 area. Key support remains at trend line support from the 2017 lows, at 1.0810.  

GBP/USD – briefly slipped back below 1.3200 yesterday but while above 1.3160 we can still head higher towards the 1.3420 level. We still have support at the 1.3000 area and need to hold above that to minimise the risk of a move towards 1.2800, on a break below 1.2980. 

EUR/GBP – still have support at the 0.8280 area. A move below 0.8280 signals a retest of the lows at 0.8200. Resistance comes in at the 0.8420 area.

USD/JPY – we’ve come to within touching distance of the 121.70 area, which is the 2016 highs. A move through 121.80 targets 123.80. Support now comes in at 118.70, however move is becoming a little overextended.  

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