Everything changes and everything stays the same, could once again be the mantra for today's world. Brexit goes from bad to worse as Theresa May’s days appear numbered if the Sunday press is to be believed. Despite the continued uncertainty as to the outcome, of which there are many possibilities, the pound remains resilient against the US dollar. The pound rose back above 1.32 against the USD on Friday; this is despite the American currency gaining ground against a basket of other currencies. It would appear that sterling speculators, at least, believe Theresa May’s deal still has some possibility of winning the day.
Friday saw a big sell-off in global equity markets as a combination of weak data and concerns that the Fed was, as we pointed out on Friday morning, almost “too dovish”. The release of the flash PMI data from Europe reported the composite index of services and manufacturing fell to 51.3, below the consensus of 52 and close to the 50 mark that suggests contraction. German manufacturing PMI came in at 44.7, driven by a steady deterioration in new orders which fell at their quickest rate since 2012 thanks to persistent weakness in the auto sector.
Europe was not the only economy to announce weak manufacturing data as the IHS flash Purchasing Managers Index for March fell to a twenty-one-month low. Jerome Powell’s dovish comments on Wednesday, along with the weak purchasing manager surveys caused the US yield curve to invert. A term used to describe when the yield an investor receives for longer-dated bonds falls below that of shorted dated ones. They are considered a sign by investors as a lead indicator of an impending recession. Equity markets in the US fell in the region of 2% as the Vix index jumped above 16. This correction was probably well overdue as equity investor sentiment had been sitting in greed territory after the strong start to the year equity markets has had. If Mr Powell’s speech was an attempt to continue to calm sentiment, it had the opposite effect as his overly dovish message led investors to wonder what he knows they don’t know when it comes to the strength of the US economy.
Looking to the week ahead Brexit will be making headlines as the original date for our departure from Europe was the 29th of March. Apple will be reporting a new product launch on Monday and may release details of its video streaming service. Several Fed members will be speaking this week and hoping to calm investors nerves over the possibility of a US recession. US and China trade talk news will also be keenly looked upon.