Risk sentiment was rocked in Europe this morning by notably weak German manufacturing PMI data. The preliminary reading for March came in at 44.7 (f/c. 48.0), down from 47.6 in February and constituted the worst reading in over six-and-a-half years. There was a knock-on effect to the pan Euro Zone report as Chief Economist at Markit Chris Williamson warned that the survey “indicates GDP likely rose by a modest 0.2% in the opening quarter”. In response, we saw broad declines across equity space with the Euro Stoxx 600 slipping to a one-week low having opened with modest gains while the Euro dropped below $1.13. However, moves in the bond markets have garnered more attention as the German 10-year yield turned negative for the first time since October 2016. US government borrowing costs followed suit with the 10-year below 2.50%. Elsewhere in FX, Sterling is ahead having shaken off a bout of Euro contagion as investors welcomed the latest developments in the Brexit saga – EU leaders have agreed to delay Article 50 until the 22nd May if UK lawmakers vote in favour of May’s deal next week. However, if the deal fails for a third time, the EU will give the UK until 12th April to indicate a way forward. The Japanese Yen is also placed towards the top of the G10 pile as the perceived safe-haven currency benefits from broad risk aversion. Elsewhere, oil prices are firmly in the red with US crude futures down around one-percent. Spot gold has added +0.3%. Looking ahead, futures are pointing to a lower open on Wall Street. On the data front, we await US PMI data, existing home sales and wholesale inventories plus Canadian CPI and retail sales.
Key Headlines/Data:
* European Corporate News:
– Deutsche Bank (-0.1%): Annual reports shows board members received bonuses for the first time in four-years
– Nokia (-7.5%): Does not plan to take on any new business in Iran
– Aggreko (+2.7%): Upgraded to ‘buy’ at Stifel Nicolaus
* Brexit: EU leaders agree Article 50 delay plan (BBC News):
– EU leaders have agreed on a plan to delay the Article 50 process, postponing Brexit beyond 29 March.
– The UK will be offered a delay until 22 May, if MPs approve the withdrawal deal negotiated with the EU next week.
– If they do not, the EU will back a shorter delay until 12 April, allowing the UK time to get the deal through or to “indicate a way forward”.
* Chinese Foreign Ministry said they have lodged stern representations with the US regarding sanctions on Chinese companies related to North Korea.
* Norges Bank Nicolaisen said the key policy rate is not projected to rise as high as in previous upturns.
* French PMI Data (Mar P):
– Manufacturing 49.8 versus 51.5 expected, previous 51.5
– Services 48.7 versus 50.7 expected, previous 50.2
* German PMI Data (Mar P):
– Manufacturing 44.7 versus 48.0 expected, previous 47.6
– Services 54.9 versus 54.8 expected, previous 55.3
* Euro Zone PMI Data (Mar P):
– Manufacturing 47.6 versus 49.5 expected, previous 49.3
– Services 52.7 versus 52.7 expected, previous 52.8
* Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said: “The eurozone economy ended the first quarter on a soft note, with the flash PMI running at one of the lowest levels seen since 2014. The survey indicates that GDP likely rose by a modest 0.2% in the opening quarter, with a decline in manufacturing output in the region of 0.5% being offset by an expansion of service sector output of approximately 0.3%.
* Euro Zone Current Account (Jan) €36.8 Bln, previous €16.2 Bln
* Speaking to Fox Business, US President Trump said the deal with China is coming along very well. He was asked about tariffs remaining for a long period of time, and said there is no snag in negotiations.
