Good morning,
GBP: Here we go again
Sterling slipped overnight following the announcement that none of the indicative votes for alternative Brexit plans gained a majority in the House of Commons. Of course, we may have another round of these indicative votes – tomorrow has already been mooted as another day of opposition business – but the ball is now back in the government’s court.
It is little wonder that sterling fell in the aftermath of the vote given the three options left on the table: May’s deal (which nobody likes), No-Deal (which nobody wants), or an election (which nobody thinks will change anything).
Prime Minister Theresa May will hold a five hour Cabinet meeting today and with that will come headlines on splits, possible resignations and whether there is enough support within the room for a customs union and a somewhat softer Brexit. We will also know tonight whether the PM plans on having another crack at her deal tomorrow as a result.
Yesterday’s manufacturing numbers looked strong if you merely looked at the headline numbers but the internals tell a much more painful story. Orders and inventories were sharply higher as manufacturing businesses stockpiled ahead of the original March 29th deadline. In the longer term, however, stockpiling can only support growth for so long as businesses run out of storage capacity.
We have the latest PMI from the construction industry which we expect to remain weak given a lack of investment in the sector.
USD: Making up for lost time
Yesterday’s manufacturing ISM number was heartening for those of us who believe that the US economy is still ploughing on at a decent speed. Any number above 50 on such an index shows growth so to see a number of 55 with inventories lower and orders higher is a big old positive tick. Unfortunately, this is only for the manufacturing sector and therefore it only represents around 10-12% of the US economy; it is tomorrow’s non-manufacturing survey – which includes the service sector – that is the most important gauge for the wider US economy.
AUD: RBA holds with subtlety
Central banks love a subtle change in language when talking about possible changes to their own monetary policy. Last night the Reserve Bank of Australia told markets that, while holding interest rates, “the Board judged that it was appropriate to hold the stance of policy unchanged at this meeting. The Board will continue to monitor developments and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time”.
Previously, they said that “the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time”.
The Reserve Bank of Australia is talking up the chances that it needs to change interest rates to hit its inflation and growth targets following downgrades to both overnight.
Have a great day.