European markets are trading lower due to the dreadful economic reading out of Germany. The factory order data plunged during the month of February, it fell 4.2 percent m/m while the estimates were for a 0.3 percent increase. The European Central bank really needs to wake up, it needs to start paying attention to these feeble economic reading.
Economic Numbers and Markets
There is clearly a disconnect between the EU economic readings and the performance of the main European benchmark indices or maybe this is more of a Goldilocks scenario, but I doubt that. Nonetheless, it is certainly very concerning because, to me, it seems like traders are only chasing the rally and not paying any courtesy to the economic numbers.
Germany is the economic engine of the eurozone and the manufacturing PMI numbers released on Monday showed that the reading of 44.1, a level which confirms that the economy is shrinking. Today’s factory order number also echoed this message. But when you look at the overall performance of the DAX index, it is up 13.22 percent year to date and the STOXX 600 is also up 15.18 percent year to date. This shows that traders are becoming greedy.
Thank You Parliament – Relief Rally In Play
Over in the UK, parliament decided that it is about time to make some sensible choice and take the no deal scenario off the table. Thus, Hard Brexit was ruled out by parliament last night and this ignited a small rally for Sterling. The currency is up 0.09 percent and trading above the critical level of 1.31 against the dollar.
Given the fact that we are looking at a strong possibility of long delay in Brexit, an important factor which can also provide a tailwind for the sterling rally is the speculation around the possibility of an interest rate hike by the Bank of England. This is because the only thing which was stopping the bank from raising the interest rate was Brexit and if there is a long delay in Brexit, the bank may actually pull the trigger on this.
Aussie-Sterling To Drop Further
Aussie equity markets sank today as Asian markets failed to provide them with any direction. The optimism around the Aussie retail sales data (which supported the markets yesterday) failed to keep the markets higher. The AUD/GBP took a hit because of the strength in Sterling and this was primarily due to the ongoing confidence that a no deal Brexit deal is off the table. However, the move wasn’t substantial because Brexit minister over in the UK has said that the possibility of the accident taking place has augmented after no deal Brexit vote, because there isn’t enough time to sign the deal. I do not necessarily agree with it, and still, maintain the stance the move toward the 0.53 mark is likely.
