Morning Commentary: Springing Forward

Foreign Exchange - Morning Commentary
Springing Forward 
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
The second quarter of the year kicked off in a positive way with global equities in the green due to positive economic data out of China. 
After three consecutive months of sub-50 prints, China's manufacturing Purchasing Managers' Index (PMI) rebounded materially to 50.8, exceeding expectations.  Notably, this is the first substantial monthly improvement since June 2018.  The PMI data series is an indicator of economic health and provides information about current business conditions.  A PMI reading above 50 suggests an expansion in the economy and a reading below 50 suggests a contraction in the economy.  A reading of 50 indicates no change.  
Breaking down the numbers, the improvements were broad based with the PMI number led higher by Production and Raw Material Inventory numbers.  New Orders were also higher, driven by stronger domestic orders, but Export Orders stayed below 50 at 47.1. 
The rebound in Chinese data indicates that the policy easing steps taken by Chinese authorities are starting to take hold, easing global concerns about growth.  The Chinese manufacturing sector likely benefited from an improvement in business sentiment due to larger than expected tax/fee cuts.  However, it should be noted that historically, March PMI readings tend to suffer from insufficient seasonal adjustments around the Lunar New Year holiday. 
For today, high level trade talks between the U.S. and China are expected to continue as Vice Premier Liu He is expected to arrive in Washington D.C. to continue last week's talks in Beijing.  The Chinese government announced an extension to the suspension of retaliatory tariffs on U.S. autos, which should help sentiment.  However, this positively is likely to be tested by the U.S. administration's plan to sell fighter jets to Taiwan.
  • Beyond China, PMI data across the Asian region has stabilized with PMI readings rising in Japan and South Korea.  This proved in contrast to Europe where poor German PMI data was revised down to 44.1 from 44.7 and the increase in U.K. PMI was due to stockpiling in preparation for Brexit. 
  • On Friday, PM May's Withdrawal Agreement was rejected for a third time.  Additionally, last week, Parliament voted and rejected a series of indicative votes, confirming a well-known narrative that there is no consensus around a way forward.  Parliament will seize control of Brexit for a second time today in an attempt to find a deal a majority can support.  Last time Parliament did this, it was unable to find a consensus but even if it does this time, PM May is not obligated to abide by the decision.   
  • U.S. retail sales fell -0.2% against expectations for a rise of 0.2%.  The USD is currently weaker against 8 of the G10 currencies with the Swiss franc and the Japanese yen being the exception as the markets are in a risk-on mode. 
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