Markets Indecisive Ahead of Critical Events
What’s been happening?
Pound Sterling – UK Markets
The British pound struggled to find direction against its major rivals and closed the day with small changes vs both the dollar and the euro on Wednesday. The data published jointly by the IHS Markit and CIPS on showed that the business activity in the UK’s service sector in expanded at its slowest pace in more than two years in November with the headline PMI falling to 50.4 from 52.2 in October. Assessing the data, “A sharp deterioration in service sector growth leaves the economy flatlining in November as Brexit concerns intensified. Measured across services, manufacturing and construction, the survey results suggest that the pace of economic growth has stalled,” said Chris Williamson, Chief Business Economist at the IHS Markit.
Although the disappointing PMI weighed on the pound sterling, comments from British Trade Minister Liam Fox allowed the currency to recover its losses. After the Prime Minister Theresa May’s government was defeated on two contempt of Parliament motions for not publishing the full legal advice on the withdrawal agreement yesterday, Fox argued that there was now a chance of not having a Brexit at all. On the other hand, The Telegraph reported that the Brexit deal was expected to be voted down on December by at least 80 votes. Meanwhile, the Parliament’s discussion on Brexit kicked off today and will continue until the day of voting.
US Dollar – US Markets
On Wednesday, the U.S. markets, including equity indexes and bond markets, were closed in honour of former President George H.W. Bush, who died at the age of 94 on November 30. The thin trading conditions caused the US Dollar Index, which gauges the dollar’s value against a basket of six major currencies, to move sideways despite the upbeat tone in the Federal Reserve’s Beige Book.
“Most of the twelve Federal Reserve Districts reported that their economies expanded at a modest or moderate pace from mid-October through late November,” the Fed said on Wednesday and added that the labour markets continued to tighten further across a broad range of occupations. “Most Districts reported that wage growth tended to the higher side of a modest to moderate pace.”
Euro – European Markets
The data released by the Eurostat on Wednesday showed that retail sales in the euro area rose 0.3% on a monthly basis in October following September’s 0.5% decline but failed to inject life into the shared currency as the PMI data reaffirmed the economic slowdown in Europe.
The IHS Markit revealed that the Composite PMI slumped to its lowest level since September 2016 at 52.7 in November with activity in Germany expanding at its weakest pace in nearly four years. Commenting on the report, “Business optimism is running at its lowest since late 2014, adding to downside risks for growth as we move into 2019. Furthermore, hiring, which has hitherto shown surprising resilience as firms have hoarded labour despite the slowdown in demand, is now also showing signs of weakness. Employment growth in November was the lowest for almost two years,” explained Chris Williamson, Chief Business Economist at the IHS Markit.
Earlier in the day, Italy’s Deputy Prime Minister Luigi Di Maio told ANSA that the climate was changing in budget talks with the EU and repeated that the government wanted to avoid any disciplinary actions from the EU. According to Reuters, Italy is expected to send the revised budget to Brussels by next week.
What’s coming up?
UK: Markets will be paying a close attention to Brexit headlines amid a lack of fundamental data releases from the UK.
US: ADP private sector employment change, weekly initial jobless claims, third quarter unit labour costs and October trade balance data will be featured in the U.S. economic docket on Thursday.
EU: There won’t be any macroeconomic data releases from the euro area other than Germany’s factory orders.