Good morning,

CNH: A slower recovery

The main news from a quiet session overnight was the publication of the latest round of manufacturing sentiment data from China. Growth remained positive but at a lower rate than the previous month and while that growth was negligible, it was still the highest level since November of last year. All in all, while the recovery remains ongoing, this data gives us the sense that the path to a full recovery is going to be a longer process than originally thought if demand for Chinese goods remains as under pressure as they are now.

Investors took the yuan lower on the news in the belief that weakness here may be enough to see the People’s Bank of China cut interest rates, although we would only be looking for such a move if these growth measures slide back into negative territory for a quarter or more.

USDCNH remains within our range of 6.6-6.8 and will be in focus once again this week as trade talks between the US and China resume.

EUR: Taking its cue from China

The euro cannot get a break at the moment and the news of a poor run of PMI data in China has set expectations that the numbers due from Europe tomorrow will also disappoint. if Chinese manufacturers are seeing low demand then doesn’t it stand to reason that European companies that may use those Chinese parts as a component of an integrated supply chain also be affected? Similarly, if the Chinese goods are finished products does that weakness mean that the European services sector is also not as strong as expected?

Investors are not hanging around to see and have marked the euro lower this morning as a result. The single currency also has the not insignificant hurdle of it’s Q1 GDP number to negotiate this morning. We expect this GDP report will look rather anaemic, especially when held up against the US’s numbers last week; it is likely to show that the US is growing around 3x as fast as Europe recently.

GBP: Votes are the real news

Sterling has not reacted to the news that a special National Convention of the Conservative Party has been called following another petition to get rid of Theresa May. The vote is non-binding and will take place in a month’s time i.e. after the local and EU elections. We will know from those wider votes what the public thinks.

The battle within the Labour party over their EU election manifesto commitments will have an effect on sterling, however, with a battle taking place over whether the party will call for a second referendum or additional changes to Theresa May’s plans as part of its ongoing talks with the government. We should know their thoughts by this lunchtime.

Have a great day.