Pound Extends Losses

Daily Analysis - 23/05/2017

Manchester Under Terror Attack

The pound is trading lower on Tuesday against most major currencies after a terror attack that killed at least 19 people at a pop concert in Manchester saw investors withdraw from Sterling. In the aftermath, Prime Minister Theresa May and opposition leader Jeremy Corbyn suspended campaigning ahead of June parliamentary elections.

EURGBP at 2-Month High

The Pound lost close to -0.30% on Monday after opinion polls showed a narrowing lead for Prime Minister Theresa May and the conservatives ahead of next month’s elections. Adding to the more pessimistic outlook are growing demands from the European Union for a so-called divorce payment they have pegged at upwards of €100 billion. The bearish sentiment was accentuated after news emerged of an explosion at an Ariana Grande concert in the English city of Manchester. Police report that at least 19 are dead and over 50 injured in what is being treated as a “lone wolf” attack.

Meanwhile, the Euro is rallying on Tuesday after German Chancellor Angela Merkel said the common currency was "too weak." Merkel’s comments provided fresh momentum for the Euro, which has been rising since the French presidential election earlier this month. EURGBP is trading close to a 2-month high around 0.8660.

Economic Activity Reaches a Three-Year Peak According to Chicago Fed

According to the Chicago Federal Reserve, its monthly measure of US economic activity improved highest point since late 2014. The regional Central Bank branch’s national activity index soared to a positive 0.49 last month - the highest since 0.50 was recorded back in November of 2014 after climbing to 0.07 in March. The three-month moving average, which tends to offer a clearer picture of the economic trend than the more volatile monthly reading, rose to 0.23 in April from a neutral reading in March.

The three-month average has trended in neutral or positive territory for a fifth straight month, adding confidence to the latest positive streak. The Chicago Fed’s national activity index is comprised of a weighted average of 85 economic indicators, with a three-month average reading below -0.70 signalling a recession. After a 3-session rally, S&P 500 futures are modestly lower on the session, trading beneath 2390.

Japanese Manufacturing Growth Slows

Manufacturing activity in Japan expanded at its slowest pace in six months in May as output and job creation slumped to multi-month lows. On a seasonally adjusted basis, the Manufacturing Purchasing Managers’ Index compiled by Nomura fell to 52.0 in May from a final 52.7 in April, but managed to remain above the 50-mark that separates expansion from contraction.

The May PMI data signalled a broad-based slowdown in manufacturing growth, with sub-indices measuring output, employment and new orders all rising at their slowest pace since November of 2016. Activity levels across the global manufacturing space will be under the scanner when Markit releases its flash manufacturing PMI figures for Germany, the Euro Area, and the United States later in the session. After gaining ground earlier in the session, AUDJPY is flat on Tuesday, with the pair last seen around 83.200.

Mexico Posts Steady First Quarter Growth

For a 15^th consecutive quarter, Mexico’s economy expanded as strength in services continued to compensate for sluggish factory activity. First quarter GDP grew at a seasonally adjusted pace of 0.70%, matching the fourth quarter figure while on an annualized basis activity climbed by 2.80% from the year-ago period per figures reported by the National Statistics Institute on Monday. Services grew by 1.00% on a quarterly basis alongside industrial production climbing by 0.10% while agricultural production edged 1.10% higher.

In addition to the positive GDP report, the Finance Ministry also lifted its full-year growth outlook to a range of 1.50%-to-2.50%, citing favourable first-quarter performance. Economists however warn that rising inflation, higher interest rates and uncertainty over US trade policy are likely to remain headwinds for growth over the coming quarters. After modest gains on Monday, USDMXN is up Tuesday morning and last seen hovering around the 18.7000-mark.