This week has been highly significant, marked by a flurry of key data releases, the UK Spring Statement, and ongoing geopolitical volatility. Given the substantial market swings observed in recent weeks, one might have expected this trend to persist. However, the markets appear to be entering a phase of consolidation.
The week started with a key data release—the Eurozone Purchasing Managers’ Index (PMI)—on Monday morning, followed by later reports from the UK and the US. Notably, manufacturing PMI exceeded expectations in France, Germany, and the broader Eurozone, moving closer to the critical threshold of 50. While Germany’s services sector underperformed expectations, it still maintained a reading above 50, signalling a recovery. However, the proposed 25% tariffs by former US President Donald Trump on the automotive industry could significantly impact this progress.
In the UK, the most significant talking point across all three jurisdictions was the sharp decline in manufacturing PMI. The previous reading stood at 46.9—above forecast—fuelling optimism for further gains, with projections anticipating an increase to 47.3. However, the actual figure fell to 44.6, marking a concerning downturn for the UK’s manufacturing sector. A similar trend was observed in the US, where manufacturing PMI also fell below expectations, dipping just below the key 50 level.
On Wednesday, the UK took centre stage with the early release of year-on-year Consumer Price Index (CPI) data. Forecasts had predicted CPI to remain at 3.0%, but the final figure revealed a decline to 2.8%. This unexpected drop increased speculation of a potential rate cut by the Bank of England in its May meeting. In response, the British pound weakened against both the US dollar and the euro.
Later that day, Chancellor Rachel Reeves delivered the Budget Statement, with the primary focus on further welfare system cuts. However, these measures are unlikely to fully balance the books, making tax increases a probable outcome. Adding to economic uncertainty, Trump officially announced a 25% tariff on the automotive industry. It remains unclear whether the UK will be included in this policy.
On Thursday, the US released its final GDP figures, with expectations set at 2.3%. The actual figure slightly exceeded forecasts at 2.4%, though the market reaction was limited. Simultaneously, unemployment claims data were released. Given its frequent reporting, this indicator rarely moves the market, and with results largely aligning with expectations, this time was no exception.
On Friday morning, the UK published its latest retail sales figures. Forecasts had projected a sharp decline from the previous 1.4% to -0.3%. However, the actual figure came in at a relatively modest 1.0% drop, easing concerns over a drastic slowdown. Unfortunately, the release of UK debt provisions later in the day tempered any potential market rally.
As we look to the week ahead, I would expect significant movement should we see the Pound break through current resistance levels.
