March 27, 2023

Daily Report 27/03/2023

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The UK PMI manufacturing index for March dipped to a 2-month low of 48.0 from 49.3 previously and below consensus forecasts of 50.0. The services-sector index recorded a slight decline also to a 2-month low of 52.8 from 53.5 and marginally below expectations of 53.0. Overall business confidence strengthened to a 12-month high. There was a sharp decline in in supply-side difficulties for the month with the delivery times declining by the largest amount since 2009. Input prices increased at the lowest rate for two years, and although there was still strong upward pressure on output prices, it was the lowest rate of increase since August 2021. The overall data impact was limited as markets focussed on fresh concerns surrounding the banking sector. As fear dominated, Sterling dipped to lows against the dollar. Comments on the outlook from Bank of England Governor Bailey will be monitored closely on Monday, although he is unlikely to provide any clear guidance at this stage with equity markets also remaining a key component.

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17.00 Andrew Bailey Speech

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The French manufacturing PMI data was slightly weaker than expected, but there was a stronger rebound for the services sector. There was a similar pattern for the German data with further deterioration in the manufacturing sector, but stronger rebound in the services sector. The Euro-Zone manufacturing index retreated to 4-month low of 47.1 for March from 48.5 previously and below expectations of 49.0. In contrast, the services sector strengthened to a 10-month high of 55.6 from 52.7 previously and well above expectations of 52.5. Manufacturing input prices declined for the first time since July 2020, but there was still substantial upward pressure on output prices. The data impact was overshadowed by fresh fears surrounding the financial sector as European banks were subjected to renewed selling. In particular, there was sharp selling pressure on Deutsche Bank which undermined confidence. Over the weekend, ECB council member Schnabel stated that headline inflation had begun to decline, but that core inflation has been sticky which maintained expectations of a relatively hawkish policy stance.

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The US manufacturing PMI index strengthened to a 5-month high of 49.3 for March from 47.3 the previous month and above consensus forecasts of 47.0. The services-sector data was also stronger with an increase to an 11-month high of 53.8 from 50.6 and above expectations of 50.5.  The dollar gained an element of support from higher yields and equities also recovered to post net gains at the close. Over the weekend, Minneapolis Fed President Kashkari stated that a credit crunch in the banking sector could push the economy closer to recession. He added that the Fed was watching the situation very closely, but also stated that it was too early for any forecast surrounding the next policy meeting.

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