The Ukraine crisis has eased overnight as a deadline passed without incident and Russian troops that were on exercise near the Ukrainian border have been ordered back to base. The Russian stock exchange -down 12% on yesterday’s session – has recovered 2.3% higher this morning, while the Russian ruble has recovered around 2% from the record lows it hit yesterday. Other emerging market currencies are joining in with the tentative rally but we cannot foresee a meaningful recovery until diplomatic tensions are lessened in coming days.
The unrest in Ukraine has shifted the focus away from a day of really rather strong economic data from the world’s manufacturing sectors. Naturally there were some weak spots – China’s and Australia’s numbers both showed worrying weakness – but figures from Europe, the UK and US all gave us cause to smile.
Eurozone PMI expanded at 53.2, thanks to higher than expected numbers from Germany and Spain and a 5 month high in France. This beating of expectations further solidifies our view that the ECB will not amend its monetary policy at this Thursday’s meeting.
Manufacturing in the UK continued to expand at a strong rate in February with new business and production continuing to drive the sector forward. Demand remains strong domestically with employment levels rallying to a 33 month high as a result of an continued influx of new orders; 3 solid indicators for wider consumer confidence and economic recovery. There is a slight note of concern following a slight slip in export orders which many seem to be attributed to recent sterling strength. The Bank of England has been vocal on GBP strength of late but we expect their loyalties to lie with the lower inflation number that a strong currency affords.
UK construction PMI is due at 09.30 with analysts looking for a figure of 63.2, slightly lower than last month’s index higher of 64.6.
The US’s ISM number surprised to the high side again with a 53.2 reading compared to 51.3 – no weather effects again. Employment remained flat and inventories were sharply higher but it is encouraging to finally see some good US data following a month or so of releases that tended to pitch to the negative.
The Australian central bank reiterated last night that they will keep monetary policy loose in an attempt to maintain recent AUD weakness. Governor Stevens said that “on present indications, the most prudent course is likely to be a period of stability in interest rates. The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher.” AUD is roughly unchanged on the announcement.
Yen has slipped the most overnight as its qualities as a haven are no longer desired. Former Bank of Japan Chief Kuroda also spoke in parliament overnight stating that there was ‘momentum’ behind the yen carry trade.
