Brexit stockpiling gives misleading UK manufacturing boost


  • UK manufacturing PMI: 55.1 vs 51.2 exp
  • Increase largely due to record levels of stockpiling
  • UK100 back near 5-month high of 7370

The latest look at manufacturing in the UK has shown a bigger than expected rise, with the PMI for March moving up to 55.1 - the highest level in a year and well above the 52.0 seen last time out. However, the headline reading here is misleading to say the least with a closer inspection revealing that a big jump in stockpiling as Brexit fears mount accounts for a significant portion of the improvement. This is obviously not sustainable, and actually reveals a short-term increase due to firms taking preventative measures as a precaution against an unwanted Brexit outcome instead of a thriving manufacturing sector. The pound made a small pop higher on the release, but this is unlikely to provide a lasting boost due to the composition of the data. Further indicative votes could shed some more light on what lies ahead for Brexit, and any developments on this front remain the primary driver of moves in the pound.   

The strong headline manufacturing PMI reading looks pleasing by itself, but when the composition of the increase is accounted for the data is not quite so positive. Source: XTB Macrobond


Risk-on flows after improvement in Chinese data

It’s been a bright start to the week for equities, with benchmarks in the UK and Europe taking their lead from Asia in moving higher after two separate data points have indicated a bounceback in Chinese manufacturing. Both the official PMI and the private Caixin/Markit measure moved topped estimates and perhaps more importantly moved back above the 50 mark to signal a return to expansion after three contractionary prints.The news has also boosted the oil price, with Brent Crude rallying up to its highest level in over 4 months and trading back near the $69 a barrel handle. While this rebound in data is no doubt pleasing, the data still remains relatively weak compared to recent years and it will likely require more good news to further build on these gains - possibly a tangible breakthrough on the US-China trade tensions.  

The FTSE is back near its highest level in over 5 months at 7370. Price is also above the 200 SMA - a rare occurrence in recent months. Source: xStation      

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