Investors will be keenly watching tomorrow’s release of Major Flash PMI figures because they could give some important clues as to where monetary policy is going. That might shake up the currency markets as the newest data available on economic growth and prices becomes available. This will be particularly relevant to the US, UK and EuroZone as their respective central banks count the days to cutting rates.
The recent trend in the PMI figures has been showing accelerating growth in the middle of last quarter. The US and the UK have seen a pick up in the speed of growth, which could be especially important for Britain as it comes out of a technical recession. Even the downturn in the Euro Area is seen moderating, with a pick up of activity in Germany. Though the largest economy of Europe still remains in contraction, the reversal of the trend might help support the shared currency.
What to Look Out For
Several key economies are floating near the 50 level, which separates expansion from contraction, a critical metric in Major Flash PMI. A few decimals can make the psychological difference, and rekindle optimism if the PMI reading manages to overtake that level. The other factor at play is that faster economic growth typically comes with higher inflation. So, an overperformance in the figures could move bets towards rates staying higher for longer. That has been the trend for the last couple of months, which has allowed for the respective currencies to strengthen.
France could be the bellwether for Europe, as it’s the first to report tomorrow. Last time around, it surprised to the upside, showing a large recovery and returning to within striking distance of expansion. Euro bulls might be hoping that the economic conditions since February haven’t deteriorated, and that could push the indicator higher. French Manufacturing PMI is expected to expand slightly to 47.6 from 47.1 prior. Services, however, are expected to remain lethargic at 48.5 compared to 48.4 prior.
There will also be a lot of expectation around Germany as well, which will report 15 minutes after France. German services PMI wowed last time around, as it jumped towards expansion. The expectation is that the move will continue, but not be quite enough to get over the 50 line, and come in at 49.1 compared to 48.3 in february. The German manufacturing sector is expected to make a recovery after last month’s drop, and return to 44.0, up from 42.5 prior.
Having the data from the two largest constituents, the EuroZone figure isn’t expected to generate much of a surprise. Services PMI is expected to consolidate in expansion at 50.8 from 50.2, while manufacturing PMI is seen advancing to 47.0 from 46.5 prior.
The UK is expected to see its expansion accelerate once again, with services well outperforming manufacturing. This growth has been a bit of a headache for the BOE, as it is seen generating wage and price increases despite the 16-year high interest rates. UK services PMI is expected to expand to 54.0 from 53.8 prior, while manufacturing PMI continues its recovery to 48.0 from 47.5 prior.
Finally, the US is expected to stay in contraction across the board. But, what could be a sign that could weaken the greenback is that the composite number is expected to show at full point drop to 51.5 from 52.5 prior. The slowing growth component could be seen as the Fed’s actions having an effect on the economy, and accelerating the move towards easing. The Fed believes its policy is restrictive, and would likely cut rates before it expected to see substantial slowing in the US economy.
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