Weak US PMI sees dollar decline
The dollar lost ground to both the euro and sterling, with the US currency not helped by a fall in the April US composite PMI contrasting to an improvement in the PMI in the Euro Area and the UK. The euro rose back to $1.07 while sterling increased to over $1.2450 for a time. The euro was down a touch against sterling, dipping just below 86p. US equities, in contrast, shook off that weaker data and were helped by robust corporate earning reports which boosted the S&P to a second consecutive daily gain, this time by 1.2%.
Activity in the US as measured by the composite PMI expanded at the slowest pace since the end of last year. The April reading fell to to 50.9 from 52.1 in March. The details were even poorer with employment and orders sub-indices dipping into contractionary territory. The US economy appears to be losing some momentum moving into the second quarter and businesses are tempering their expectations for their own output and the economic outlook in general.
In contrast, European economic fortunes appear to be on the upturn according the April PMI composite reading. It rose to 51.4 from 50.3 in March, the highest in 11 months. The increase was driven by a robust rise in the services sector, particularly a strong increase in Germany, while the manufacturing sector remains in contractionary territory. The news from Germany was unexpectedly positive with the composite rising above 50 for the first time since last June and indicates Europe’s largest economy is growing again, following a small fall in GDP in Q4 of last year. In the UK, the composite PMI reading in April was also positive, rising to 54.0 from 52.8. It was all driven by a rise in the services sector while the manufacturing index fell.
In Ireland, the Government published its latest Stability Report. This contains its latest economic forecasts which sees the Government revise down its forecast for modified domestic demand for this year to 1.9% from 2.2% in its Budget day forecasts. This modest downward revision is due to a view in the report that consumer spending and investment is slowing but, on the other hand, there are plenty of signs that the economy is holding up, particularly in the robust labour market. The Government is still projecting a very sizable budget surplus of €8.6bn (2.8% of GNI*) this year and €9.7bn (3% of GNI*) next year. This is driven by ‘windfall’ corporation tax receipts which the Government also warned are concentrated and cannot be relied over the longer term. Nonetheless, the level of surplus will give the Government room for another sizable budget package – whilst adhering to their self imposed 5% limit to spending increases – in Budget 2025, the last before the general election.
On the economic data front today we have the German IFO index and CBI report in the UK while we get capital goods orders in the US. On the speaker front we have the ECB’s Nagel, Cipollone and Villeroy due out.