Pound steady following Parliament’s voting, Chinese PMI deteriorates

Summary:

• UK Parliament voted on five amendments on Wednesday, an extension of Article 50 more likely
• China’s manufacturing PMI deteriorates to 3-year low in February
• Better macroeconomic data from Australia and dismal soft indicators from New Zealand

A series of votes in the UK

The UK’s Parliament voted on a series of amendments on Wednesday, however, only two of them were passed. MPs rejected the amendment A giving the Labour Party a negotiating position, the amendment K suggesting that the government should rule out leaving the EU without a deal in any circumstances. On the other hand, two important amendments were passed. The first one (B) concerned safeguarding the rights of EU citizens even if the UK leaves the block without an agreement. The second one (F) reiterated commitments made by the prime minister on Tuesday to allow votes on a no-deal Brexit and a delay to Brexit if her withdrawal agreement is rejected once again. What does it mean for the pound and what to expect next? After a number of votes being held on Wednesday in the UK’s Parliament a schedule for the coming weeks looks as follows: 1) MPs will be invited to vote on a May’s current Brexit deal on March 12 which is likely to be rejected, 2) if her deal is voted down, MPs would vote in the following day on whether the UK should leave the EU without any accord, again this is likely to be rejected, 3) after failing to pass the two previous votes, MPs would vote on a third consecutive day on whether the UK should seek an extension of Article 50 - this is likely to be passed. To sump up, March 12-14, these days seem to be remarkably important in terms of further Brexit developments. We reckon that an extension of Article 50 is the most likely scenario as for now. As far as market movements are concerned, the pound was steady following a series of votes yesterday and it is trading subtly lower against the US dollar this morning. However, the FTSE 100 (UK100) lost 0.6% on Wednesday being among the weakest indices in Europe.

The British pound soared on Wednesday on optimism concerning a series of Brexit-related votes. The pair approached the resistance of 1.33. The target stemming from a breakout of the bearish channel could be set at around 1.3640. Source: xStation5

A lot of data from Asia

We were offered a plethora of macroeconomic readings over Asian hours trading. The first one, and probably the most important, was China’s manufacturing PMI which slid in February to 49.2 from 49.5, marking the third consecutive month in contraction and reaching its 3-year low. The details showed that export orders fell at the fastest pace since the last financial crisis, reflecting stuttering global demand. At the same time, total new orders moved back to above 50 points suggesting that domestic demand in China improved over this month, albeit keep in mind that this uptick could be ascribed to the Chinese Lunar New Year. In turn, non-manufacturing PMI fell to 54.3 from 54.7.

Some interesting data came from antipodean countries - Australia and New Zealand. Australian capital expenditure rose 2% QoQ in the final three months of the past year beating the median estimate of a 1% QoQ increase. The more detailed data showed that machinery CAPEX rose 0.7% QoQ while building CAPEX grew 3.2% QoQ. On top of that, we got the first estimate regarding CAPEX in 2019/2020 which totalled 92.1 billion AUD. This is quite a promising number, however, it is too early to assess if the next season is better than the previous one. Apart from this data there was also a reading concerning private sector credit in January. Lending to the private sector grew 0.2% MoM coming is slightly below expected 0.3% MoM. In turn, lending to the housing sector rose also 0.2% MoM after rising 0.3% MoM in December.

The first estimate for CAPEX in 2019/2020 may be encouraging, but there it is too early to assess if this translates into higher actual expenditure. Source: businessinsider.com.au

Finally, soft indicators from New Zealand for February disappointed. Business confidence fell to -30.9 from -24.1 meaning that roughly 30% of surveyed companies expect the economy to deteriorate over the upcoming year. Activity outlook also moved lower to 10.5 from 13.6 suggesting that there are less firms expecting their own businesses to grow over the next twelve months. Note that both AUD and NZD are little changed this morning.

Sentiment among New Zealand’s companies got worse in February. Source: Macrobond, XTB Research

In the other news:

• Japan’s retail sales dropped 2.3% MoM while industrial production shrank 3.7% MoM in January

• New Zealand’s budget surplus reached 481 million NZD after seven months of the fiscal year, the value was above the forecast