Morning Report

April 03, 2024

“Eurozone CPI and the US ISM Services PMI will provide the markets with some fresh clues today, with the euro at risk of a bout of weakness if inflation lands closer to the target than the markets expect. As we approach the beginning of the major cutting cycles, divergence in expectations for the central banks is starting to fuel more volatility.”

Sam Cornford – Head of Trading


Main Headlines

Taiwan was struck by a 7.2 magnitude earthquake this morning – the strongest in over 25 years to hit the island – triggering tsunami warnings in the West Pacific that was later pulled. Shares in the world’s largest chipmaker, TSMC, slipped over 1% in the aftermath of the earthquake as nerves jumped over potential disruption to activity or damage to critical chipmaking equipment.

In a notable turnaround, British manufacturers witnessed an expansion in activity in March for the first time since July 2022, driven primarily by a resurgence in domestic demand, according to the S&P UK Manufacturing PMI. The index climbed to 50.3 from a preliminary estimate of 49.9, jumping from a 47.5 print in February.


Sterling modestly trimmed its losses against the dollar yesterday as some positive data aided a retracement of some of the prior day’s 0.5% slide. As mentioned above, the return to expansion for the British manufacturing sector marked something of a turning point for the UK economic outlook, as it joined its services equivalent in printing above the 50.0 mark following a slump through 2023 that sparked a technical recession. The growth-boosting effects of easing financial conditions on credit demand was evidenced at the same time by mortgage approvals, which climbed to the highest level since September 2022 at 60K, and by net consumer lending, which jumped at the highest rate since August last year. The US and European data will guide sterling today, with the next impulse coming from the final services PMI tomorrow.


Traders are looking at a soft print in the flash eurozone CPI estimate this morning that should bolster bets for a beginning to the ECB easing cycle in June. The German figure fell from 2.7% to 2.3% in a broadly anticipated move yesterday that did little to restrain the euro’s 0.3% recovery, but provided markets with another stark signal that the bloc-wide reading this morning will inch ever closer towards the 2% target. The consensus estimate points to 2.5% but, given that the four largest economies in the area all printed below this level, is at risk of overestimating the result – this tilts the risks firmly to the downside for the euro today.


Having handed back some of its manufacturing-related gains yesterday, ADP non-farms, the ISM services PMI, and another speech by Fed Chair Powell are next in line for the dollar today. Job openings landed exactly as expected at 8.76M, but underlying signs of softness – including a cooling quits rate and an improving labour supply – signalled a steady movement towards disinflation that is unlikely to worry the Fed. Markets are now pricing in fewer cuts this year than the Fed, however, pencilling in only 68bps of policy easing after some fresh bouts of resilient economic data have bolstered the ‘no rush to cut’ mantra. The ISM services PMI is likely to edge up this afternoon to 52.8, according to estimates, while markets will be paying particular attention to the prices paid component for clues on the inflationary trajectory. Fed Chair Powell takes the podium again this evening, after his colleague Mester said yesterday that she had upped her estimate of the long-term neutral interest rate from 2.5% to 30% as a result of robust US economic activity.


Higher yields triggered by Monday’s fresh set of resilient US data put some significant pressures on stock indices globally yesterday. The S&P 500 notched its biggest daily slump in a month, dragged by megacap and technology stocks, with Tesla slipping 5% after it announced that quarterly vehicle deliveries had slipped for the first time in almost four years. In the UK, the FTSE 100 touched an all-time closing high as it breached the 8,000 mark for the first time since early 2023, but subsequently slipped on the day.

Main Economic Events (All Times CET)

11:00am: Eurozone CPI Flash
2:15pm: US ADP Non-Farm Employment Change
2:30pm: Fed’s Bostic speaks
4:00pm: US ISM Services PMI
6:10pm: Fed Chair Powell speaks


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