"Just a man stood in front of EURGBP asking it to move"

We’re a bit survey waffle heavy today, but its worth digging into the latest Purchasing Managers’ Index surveys to get a snapshot of the health of the Eurozone and of post-Brexit UK. In short, the Eurozone is bad, but not bad enough to get the European Central Bank sweating. GBP data is looking good, but not enough to get everybody spraying the Kentish sparkling wine post-Brexit champagne substitute around. Survey data released this morning suggested that the Eurozone as a whole was less impacted by Coronavirus disruption than some may have predicted. The flash IHS Markit Eurozone Composite PMI rose from 51.3 in January to indicate the largest monthly increase in business activity since last August. However, while the headline composite number was healthier than expected, the print was mostly driven by the services sector, where business grew at its joint-fastest rate seen over the last six months. Elsewhere, manufacturing remains in decline - new orders rose at a rate equal to January’s seven-month high, yet the rise was insufficient to prevent backlogs of work continuing to decline slightly, hinting at persistent excess capacity. Digging down further, Germany’s headline flash Manufacturing PMI made gains from January’s 45.3 to print at a 13-month high of 47.8. However that’s still below the 50.0 mark indicating that German manufacturing remains in contraction, while the survey also indicated that almost half of the index’s month-on-month gain came from a deterioration of supplier delivery times linked to corona virus-related disruption from China. The less-bad data from the Eurozone helped it to claw back some of its losses against USD to USD1.082, before breaking back below that USD1.08 level that it’s bounced around all week, however it’s up to US data later on today to potentially push that lower. EUR STANDING FIRM AGAINST GBP While the Euro has been taking plenty of hits from the dollar, we’ve not seen as much ground (if any) made up by sterling against the common currency. We’re now comfortably into the post-election, post official Brexit date for data and this morning’s UK PMI data indicated strong manufacturing activity for the UK, with manufacturing production growth accelerating to its strongest for 10 months in February. The stronger manufacturing data helped to offset a slight loss of momentum in the service economy with the IHS Markit / CIPS Flash UK Composite Output Index unchanged at 53.3 in February and comfortably above the 50.0 threshold that separates expansion from contraction. In addition, the latest reading pointed to the joint-fastest expansion of private sector output since September 2018 (equalling that recorded in January). As with the Eurozone, the UK PMI surveys indicated concerns over the disruption from COVID-19, with service providers hit by reduced tourism-related bookings as well as cancellations from overseas clients in affected areas. In addition, the PMI surveys noted that: “Manufacturers noted that abrupt shortages of components from China had reverberated through their supply chains and led to difficulties sourcing critical inputs.” So with all of this, why isn’t EURGBP moving more? On the Euro side, we’ve had, at best, mediocre PMI data. Earlier in the week we had the report from the ZEW institute which added to fears of a further slowdown in the German economy in the second half of this year, with the economic sentiment among investors falling to 8.7 from 26.7 in January. On the GBP side, we’ve had fairly solid post-election data that has all-but evaporated any rumours of a Bank of England rate cut – jobs numbers released on Tuesday indicated that the number of people in work in the UK beat expectations by rising 180,000, leaving the jobless rate at a 40-year low at 3.8 percent. While GBP managed to break through that EUR1.2000 number mid-week, it lost momentum and steadily sold off through the week. So what’s it going to take to inject some momentum? Next week is a bit of a wasteland as far as market-moving data goes, but if moves are going to come, it’s going to have to come from confidence in the GBP side of the equation. While it’s held its ground against sterling, the euro has been heavily sold against USD and sterling gains are probably checked on that side by views that the euro is oversold. However, there is hope for sterling bulls. For one, despite the surprise resignation of Sajid Javid as Chancellor in the cabinet reshuffle, the new Chancellor Rishi Sunak has confirmed the Budget will still take place on 11 March 2020. Expectations are that with hawkish Sajid Javid ousted, the Treasury will turn on the taps with a big spending spree, further confounding any talk of BoE loosening of policy. With little to move things data-wise, expect any talk of Boris Johnson’s new government whacking some new infrastructure projects on HMG’s credit card to help bolster GBP. To discuss any of the items we have covered in today's market update, contact us via info@labardemanagement.com or call us on (+44) 0203 3488 1169