What’s been happening?

Pound Sterling – UK Markets 

Boosted by the upbeat data, the British pound gained value against the dollar for the third straight day on Wednesday and stayed relatively calm against the euro. The data published jointly by the IHS Markit and the CIPS on Wednesday showed that the economic activity in the service sector contracted in March with the headline PMI falling below the 50 marks for the first time since July 2016. Summarising this week’s PMI figures, “A drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole and at risk of sliding into a deepening downturn in coming months,” said Chris Williamson, Chief Economist at the IHS Markit. “Both the services and construction sectors are now in decline and manufacturing is only expanding because of emergency stockpiling ahead of Brexit.”

On Brexit-related headlines, British Brexit Secretary Barclay explained that Parliament was planning to pass a law to block a no-deal Brexit that can’t be ignored by Prime Minister Theresa May. Regarding the request for an extension to Article 50, Barclay that the timing of any such request will be shaped during the discussion with Labour Party leader Jeremy Corbyn.

Following his meeting with PM May, Corbyn told reporters that they had constructive discussions about how to break the Brexit deadlock but added that today’s talks were inconclusive and there hadn’t been as much change as he expected.

US Dollar – US Markets

The greenback weakened against its major rivals on Wednesday following the disappointing data releases. The monthly report published by the ADP showed that the private sector employment increased by 129K in March to miss the market expectation of 170K by a wide margin. “Businesses are hiring cautiously as the economy is struggling with fading fiscal stimulus, the trade uncertainty, and the lagged impact of Fed tightening,” Mark Zandi, chief economist of Moody’s Analytics, noted. 

Other data from the U.S. revealed that the service sector lost momentum in March with the IHS Markit and the ISM non-manufacturing PMI readings falling short analysts’ estimates. “The non-manufacturing sector’s growth cooled off in March after strong growth in February. Respondents remain mostly optimistic about overall business conditions and the economy. They still have underlying concerns about employment resources and capacity constraints.” the ISM stated in its press release. 

Euro – European Markets

The shared currency gathered strength on Wednesday and recovered all the losses it suffered against the dollar since Monday. Despite the disappointing Manufacturing PMI figures that were published earlier this week, the IHS Markit’s Composite PMI in March came in at 51.6  for the eurozone to beat the market expectation of 51.3. A strong service sector, which is shown by the Services PMI’s advance to 53.5 in March from 52.8 in February, helped the economic activity stay in the expansionary territory. Assessing the data, “The final eurozone PMI for March confirms the sluggish end to the first quarter, with business growth ebbing to one of the most lethargic rates seen since 2014,” Chris Williamson noted. Similarly, the Composite PMI for Germany came in at 51.4 while Services PMI improved to 55.4 to offset the contraction witnessed in the business activity in the manufacturing sector. 

Meanwhile, the Eurostat reported that retail sales grew by 0.4% on a monthly basis in February to beat the market expectation of 0.2% and lifted the annual rate to 2.8% from 2.2% recorded in January. “In the euro area in February 2019, compared with February 2018, the volume of retail trade increased by 4.4% for non-food products, by 1.6% for automotive fuels and by 0.6% for food, drinks, and tobacco,” the Eurostat explained in its publication.

What’s coming up? 

UK: There won’t be any macroeconomic data releases from the UK and markets will remain focused on Brexit-related headlines.

US: The U.S. Bureau of Labor Statistics will release its weekly jobless claims data. Later in the day, FOMC members Mester and Williams will be delivering speeches.

EU: Factory orders from Germany will be the only data featured in the European economic docket on Thursday.