Eurozone Composite PMI revised lower, but still at a 10-month high today. The S&P Global Composite Output Index was revised down to 53.7 from 54.1, but this was still considerably better than the 52.0 in February and indeed a 10-month high. The services index was revised down to 55.0 from 55.6, also a 10-month high. The Manufacturing PMI remains stuck in contraction territory, but the manufacturing output index has improved and this morning’s surprisingly strong German factory orders number (+4.8% vs. 0.2% expected and 0.5% last month) also adds to signs that the sector is recovering. Spain and Italy are leading the recovery of the services sector, which also reflects the bounce in tourism activity with the final removal of the last virus restrictions. Demand continues to pick up and that is also creating more room for companies to pass on the sharp rise in cost pressures, although for central bankers it adds to the concern that second round effects will keep domestic price pressures on the rise. Companies remain optimistic on the outlook and the data will add to the arguments for further rate hikes from the ECB, even as headline inflation is cooling thanks to lower energy prices and base effects.
Across the English Channel, UK Composite PMI was confirmed at 52.2, down from 53.1 in the previous month. The Services PMI dropped to 52.9 from 53.5 in February, but still signalled an expansion in activity for the second month running. S&P Global/CIPS flagged that the “average reading for the first quarter of 2023 signalled a turnaround in business activity after the marginal fall seen during the final three months of last year”. Business and services confidence is improving, and the increase in total new orders was the strongest since March 2022. Business expectations for the year ahead improved for the fifth month in a row. At the same time though, the improvement in demand is fueling a rise in prices charged, while salary rises remain one of the biggest costs to business. So while the headline corrected slightly at the end of the first quarter, the marked improvement and signs of ongoing cost and price pressures will also add to the arguments in favour of another rate hike from the BoE.
On balance, Euro and Sterling are both stronger today as EURUSD holds at 1.0950, just shy of yesterday’s 43-day high at 1.0970 and significantly north of 1.0900. The recent strong rally in Cable which saw the key 1.2500 being breached yesterday has cooled to 1.2475 today.
Meanwhile, EURGBP is still biased to the stronger Pound. Technically, the H4 chart remains biased to the down side, the key 0.8800 and 50SMA at 0.8788 remains upside resistance, support sits at the March low around 0.8725 which was tested once again yesterday. The MACD signal line is below 0 and falling, RSI at 50.00 is neutral, with the fast Stochastic 78.00 and rising.
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