May 03, 2023

Daily Report 03/05/2023

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The UK April PMI manufacturing index was revised to 47.8 from the flash reading of 46.6 with new orders also continuing to contract. There was a further easing of inflation pressures with input prices increasing at the slowest rate for 35 months while output prices increased at the slowest rate for 28 months. The easing of inflation pressures was a significant factor in pushing business optimism to a 14-month high which helped underpin confidence in the data. Sterling overall lost ground during the day with a slide in equites and the more defensive risk tone undermining the UK currency.

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The Euro-Zone PMI manufacturing index was revised higher to a final reading of 45.8 from the flash reading of 45.5 but confirmed at a 35-month low. Input prices declined again for the month with the fastest rate of decline for close to three years while output prices increased at the slowest rate since November 2020. The headline Euro-Zone CPI inflation rate edged higher to 7.0% for April from 6.9% previously and in line with consensus forecasts. The core rate edged lower to 5.6% from 5.7% and also in line with market expectations and the data overall had little impact. The Euro was unable to make any headway after the European open and gradually lost ground with a retreat. The latest ECB survey recorded a tightening of credit standards to the largest extent since 2011 which will increase reservations surrounding the economic outlook.

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The dollar gained initial support from weaker risk appetite after the US open, but lower yields sapped support and there was a net adjustment in Fed interest rate expectations with markets pricing in just above an 85% chance of a rate hike this week. Markets also see the most likely outcome as a rate of 4.75% at the end of 2023. There will be a sharp reaction on Wednesday if the Fed does not increase interest rates. If rates are increased in line with expectations, markets will be monitoring the guidance within the statement. The rhetoric from Chair Powell will also be very important for overall sentiment with a focus on talk surrounding recession and credit conditions. The dollar was unable to make further headway on Wednesday ahead of important US data and the Fed statement.

Key Data

13.15 ADP Employment Change (Apr) Exp. 148K Prev. 145K
15.00 ISM Services PMI (Apr) Exp. 51.8 Prev. 51.2
19.00 Fed Interest Rate Decision Exp. 5.25% Prev. 5%
19.00 Fed Monetary Policy Statement
19.30 FOMC Press Conference