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UK Construction PMI impresses - but were we really expecting anything else?

Today’s macro highlights:

  • GBP - Services PMI (April)
  • EUR - Eurozone CPI (April)
  • USD - Factory orders (March)

UK Construction PMI impresses - but were we really expecting anything else?

Of the three higher profile macroeconomic releases yesterday, perhaps it was the UK construction PMI print which produced the most excitement - but really should the market have been expecting anything else? Bad weather in March had proved damaging for the industry, so the number was always going to be working against an easy set of comparatives. The Pound jumped in the immediate wake of the release, but unsurprisingly the sentiment wasn’t sustained.

Looking at the bigger picture, the underlying tone of UK economic data remains negative, so the services PMI print for April which is due at 9.30am BST today will be under some close scrutiny. Expansion is forecast to be seen here, although with the shortfall in Q1 GDP and the reserved attitudes we’re seeing from UK consumers, this number could well come up short. The market is arguably becoming increasingly twitchy over the fact that a wholesale economic slowdown could be around the corner, so something like this PMI number could really set the tone for Sterling as we head into the long weekend break.

Eurozone inflation data is slated for release at 10am BST. Although the corresponding German reading - often seen as a good early indicator - beat expectations on Monday, that overhang of yesterday’s drop in GDP for the currency block is cause for concern. It’s adding weight to the argument that the recovery may be running out of steam even before the ECB can stop its QE activities. Quarterly expansion of just 0.4% was the lowest since the summer of 2016 and although some are trying to explain it away by pointing at strikes and unseasonably cold weather, it has done little to calm fears as to what the remainder of 2018 holds.

It’s a busy day for data releases from the US but focusing on the factory order number for March due at 3pm BST, this might provide some further clues over the impact of President Trump’s trade policies. This is a broader reading that last week’s durable goods order number which impressed - so long as you took the figure including transport. The market is expecting to see growth of 1.4% here, but with the dollar having had a good run in recent weeks, even a modest shortfall could act as a sell-signal in the near term.

Cable is now sitting at levels below those we saw in the immediate wake of the Brexit vote. A move down to fresh lows for the year remains possible if data continues to disappoint - although after a punishing couple of weeks, there’s an argument to say the pair is looking oversold in the short term. 

Last night’s FOMC caused a lot of short term volatility on the pair, although the overall trend remains undisputedly lower. Disappointment in the inflation reading today would likely push the Euro to fresh lows for the year.

The pair is currently consolidating - and arguably this is no surprise. It seems to be a question of whose data disappoints the most that will provide the next meaningful direction here. Given the backdrop of uncertainty from both sides this could go either way - a return towards last month’s highs around 1.16 or tumbling back to the year-to-date lows below 1.12.