The Noes Have It - Again

Sterling pares early gains as political headwinds intensify after Parliament once again rejects alternative options for Brexit.

Previous Day's Market Highlights

Sterling experienced a volatile trading day on Monday after Parliament once again rejected all the alternative Brexit options on the table in a second round of indicative votes. The pound had started the day on the front foot, gaining around 0.75%, after better than expected manufacturing PMI data and hopes of a ‘softer’ Brexit option being able to find a majority. Manufacturing PMI rose to a 13-month high, at 55.1, though this figure was artificially inflated by a G7 record-high level of stockpiling, as factories ramp up activity pre-Brexit, hence the data does not give a true reading of manufacturing activity. Turning to the evening’s indicative votes, the House of Commons once again failed to find a majority for any of the options on the table, though leaving with a customs union failed by a margin of just 3 votes. With the way forward appearing even murkier, and political headwinds intensifying, the pound came under significant downward pressure and pared the majority of the day’s gains. Sterling settled with more modest gains, closing the day up just 0.2% against the dollar, while adding 0.4% against the euro. 

Elsewhere, the euro fell for a 5th consecutive day after a poor round of manufacturing PMI figures. Data for the eurozone as a whole fell to its lowest level since April 13 at just 47.5, though of more concern will be a further drop in the gauge for Germany, which fell to 44.1 - an 80-month low. The poor data will do little to allay investors’ concerns of a prolonged economic slowdown in the eurozone, with the single currency falling around 0.2% over the day in reaction. In contrast, the dollar gained, aided by a rebound in ISM manufacturing PMI figures, though any rallies were capped by a further decline in retail sales, which fell at 0.2% on a month-on-month basis in February. Overnight, the Aussie dollar has lost ground after the RBA’s latest policy announcement. Rates were kept on hold at 1.5%, though the rate statement emphasised the importance of incoming economic data for future policy decisions, increasing expectations of an upcoming rate cut. 
In other markets, both equities and commodities started the new quarter on the front foot. Upbeat manufacturing PMIs from China and the US helped sentiment, pushing the S&P 500 to a gain of 1.2%. In Europe, the pan-continental Stoxx 600 gained by a similar amount. Oil prices also firmed, buoyed by upbeat data, with both Brent and WTI adding more than 1%. 

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 1.3045 1.3381 1.2939 3.30%
EUR/USD 1.1200 1.1448 1.1176 2.38%
GBP/AUD 1.8435 1.8851 1.8271 3.08%
GBP/NZD 1.9245 1.9512 1.8960 2.83%
GBP/CAD 1.7380 1.7795 1.7328 2.62%

Today's Market Highlights

Tuesday sees a lighter economic calendar, with the main data point coming from the US this afternoon in the shape of durable goods orders for February. Expectations are for orders to have decreased at 1.8% over the month, though the core figure, which excludes transportation, is likely to have modestly increased at 0.2%. Markets will use the data as a useful leading indicator for production, with a rise in orders likely to follow through to an increase in manufacturing activity. A positive figure will likely continue to boost sentiment following yesterday’s positive manufacturing PMI survey. 
In the UK, construction PMI figures are expected to remain in contractionary territory, though focus is likely to be on the next steps in the Brexit process. Cabinet will meet this morning to decide on a way forward which could include a fourth vote on the Withdrawal Agreement, an election or leaving without a deal. Parliament may also hold another series of indicative votes on Wednesday to try and find a majority for an alternative option. Meanwhile, in the eurozone, data is limited with only PPI inflation of note which, while a useful leading indicator for CPI, is unlikely to attract significant market attention. 
Central bank speakers are also lacking, with just the ECB’s outgoing Chief Economist Peter Praet due to speak. 

Today's Economic Calendar

Time Currency Release Consensus Previous
09:30 GBP Construction PMI (Mar) 49.8 49.5
10:00 EUR PPI (y/y) 3.1% 3.0%
13:30 USD Durable Goods Orders (Feb) -1.8% 0.3%
13:30 USD Core Durable Goods Orders (Feb) 0.2% -0.2%