Economic Warning Signs Emerge

Markets ended the week in a risk-off mood after disappointing eurozone data and a US recession warning sign ahead of another key week in UK politics.

Previous Day's Market Highlights

Friday's Market Highlights

Markets struck a risk averse tone on Friday, as markets once again became anxious over global economic growth, with worrying signals coming from both the European and US economies. In Europe, concerns stemmed from a plunge in German and eurozone manufacturing PMIs for March, with both readings vastly missing forecasts. In Germany, the eurozone’s largest economy, the gauge fell to 44.7, firmly in contractionary territory and the lowest level in 7 years. Meanwhile, for the eurozone as a whole, manufacturing PMI fell to 47.6, a near-6 year low, and also well below the key 50 barrier between expansion and contraction. Despite the services sector remaining resilient, with a PMI reading of 52.7, the data rounds out a miserable first quarter for the eurozone and has dashed hopes that February’s positive economic readings were a sign of poor data bottoming out. Over the course of the day, the euro fell by 0.6%, paring some losses having been down by more than 1% during the morning session. 
 
Another concerning economic indicator was in evidence in the US, with the spread between 3-month and 10-year Treasuries inverting for the first time since 2007. This means that the yield on longer term US government debt has now fallen below that on shorter-term debt, a sign of investors bracing for the Federal Reserve to cut interest rates as well as being a reliable indicator for an upcoming recession - though an inversion does not predict the timing of such an event. The market is currently pricing approximately a 60% chance of the Fed cutting rates this year, a reflection of the FOMC’s dovish policy shift last week. In reaction to concerns about the future state of the economy, investors fled riskier assets and flooded into safe-havens. The yen rallied, gaining 0.8%, with the dollar also seeing some demand. In contrast, the Australian dollar, typically a proxy for risk sentiment, fell by around 0.6%. 
 
Elsewhere, the pound gained ground, adding around 0.6% over the course of the day as the market remained optimistic that a no-deal exit from the European Union would be avoided. In contrast, the Canadian dollar lost ground, falling 0.5%, after a mixed bag of economic data. Despite inflation beating forecasts, showing prices increasing at 1.5% on a year-on-year basis in February, a 0.3% decline in retail sales, along with a steep decline in oil prices, dragged the loonie lower. 
 
Away from FX, equity markets reacted negatively to the aforementioned economic concerns as investors rotated into less-risky assets. The pan-European Stoxx 600 closed 1.2% lower, while the S&P 500 lost 1.9%, its worst trading day since January. Finally, oil prices also softened in reaction to economic concerns, with global benchmark Brent losing 1.4%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1645 1.1803 1.1463 2.88%
GBP/USD 1.3170 1.3381 1.2939 3.30%
EUR/USD 1.1310 1.1448 1.1176 2.38%
GBP/AUD 1.8585 1.8851 1.8299 2.93%
GBP/NZD 1.9130 1.9542 1.8946 3.05%
GBP/CAD 1.7675 1.7795 1.7111 3.84%

Today's Market Highlights

A fresh week begins with Brexit remaining at the forefront of investors’ minds once again. The Government are today due to lay a ‘neutral’ motion to Parliament outlining the state of the Brexit negotiations. As is now usual, MPs will table amendments to this motion in an attempt to canvass support for their preferred way forward. It is likely that amendments will centre around a plan for ‘indicative votes’ across the House of Commons in an attempt to find a way forward in the negotiations that a majority in Parliament would be able to support. Amendments along these lines have a high chance of success, having previously been defeated by a margin of only 2 MPs. For the pound, focus will remain on the eventual outcome of the Brexit process, with any moves towards a ‘softer’ Brexit likely to see sterling find some support. Other Brexit-related points of note this week include a potential third ‘meaningful vote’ on the withdrawal agreement as well as pressure on the Prime Minister to lay out a timetable for her departure. 
 
Elsewhere, Monday’s economic calendar is limited to mainly second-tier economic data. This morning’s business sentiment figures from Germany are likely to be closely watched, especially after the fall in manufacturing PMI figures on Friday. Other notable releases include trade balance data from New Zealand, expected to show a modest narrowing of the trade deficit, as well as the summary of opinions from the Bank of Japan’s latest monetary policy meeting. Markets will also hear from the Reserve Bank of Australia’s Ellis this evening. 
 
Looking ahead to the remainder of the week, focus is likely to lie with the plethora of Federal Reserve speakers due. Approximately 8 Fed speeches are scheduled over the next 5 days, with investors likely to closely watch each one to gauge the reasons for the Fed’s dovish policy shift as well as attempting to predict the Fed’s next policy moves. Other highlights include final GDP figures from the UK, US and Canada as well as the Reserve Bank of New Zealand’s latest policy decision. Rates are expected to be kept on hold at 1.75%, however the RBNZ may follow other central banks in striking a more-dovish than expected tone.

Today's Economic Calendar

Time Currency Release Consensus Previous
09:00 EUR German IFO Business Climate 98.7 98.5
12:30 USD Chicago Fed Activity Index -0.43
21:45 NZD Trade Balance (y/y) -6.13bln -6.36bln
23:50 JPY BoJ Summary of Opinions