Growth in UK’s Dominant Service Sector Disappoints
Today, a string of services PMI reports from across the globe have taken the spotlight. Britain’s services PMI data that came in just now showed that growth in services sector activity unexpectedly dropped for September. Looking ahead, BoE’s interest rate decision along with the accompanying meeting minutes due later this week will attract significant market interest.
In Europe, September’s survey showed easing of business activity at services firms in the Euro zone and most of its economies, fuelling doubts about growth prospects in the final few months of the year. Across the Atlantic, final services PMI and ISM non-manufacturing PMI reports are on the cards while the labour market conditions index will also be closely eyed.
Pound Sterling – UK Markets
The just released downbeat UK services PMI data has dragged the Pound – US Dollar currency pair below the 1.52 mark. In the UK, headline services PMI unexpectedly fell in September, with growth in services sector activity slowing to its weakest level in nearly two and half years. The UK’s dominant services sector which is the largest contributor to the nation’s GDP, registered slower level of activity last month as consumers curbed spending amid growing concerns about global economic growth. The disappointing economic data has fuelled concerns that the domestic economy lost some momentum in the third quarter. Going forward, this week the BoE is scheduled to announce its interest rate decision for October, while data on UK’s industrial and manufacturing sector will also draw notable market interest.
Sterling surged to a weekly high against the greenback on Friday, on the back of unimpressive US employment data. In the initial part of the trading session, better than anticipated UK construction PMI data had somewhat boosted the appeal of the Pound against its key peers.
US Dollar – US Markets
The US Dollar traded lower across the board on Friday after the US labour department published disappointing September figures, causing traders to push back expectations regarding the timing of a Federal Reserve interest rate rise this year. Data showed that US employers added fewer jobs than expected in September, wages stagnated and the jobless rate remained unchanged at a multiyear low as people left the labour force. The disappointing employment report has substantially reduced expectations of a Fed move this month. The lower than expected rise in payrolls has come at a time when markets around the world are threatened by slowdown concerns in China, and could accentuate concerns about the US job market outlook.
A survey report on the services sector, which represents the lion’s share of economic activity in the US, is expected to confirm later today that activity growth in the US services industry eased in September. However, the activity levels still indicate a robust pace of expansion in the service sector.
Euro – European Markets
The Euro has managed to sustain gains against the US Dollar this morning, as the greenback continues to remain pressured by Friday’s poor US employment data. As for today, services PMI from the euro zone and its peripheries hit the wires earlier in the day, with only France showing a slight improvement in business activity for last month. Meanwhile, services sector activity in Germany weakened, missing expectations for September. PMI readings from Spain and Italy suggested that growth in their respective service industries decelerated in the previous month. In the Euro area, pace of expansion in business activity eased as new orders rose at a slower pace for September. These economic data releases, however, had limited influence on trading in the shared currency against the majors. Later today, Euro zone’s retail spending data is scheduled for release.
On Friday, data showed that Euro zone producer prices contracted beyond expectations for August, fuelling speculation that the ECB might be coerced to intervene with higher levels of asset buying in order to stimulate price pressures in the region.
Other Currencies – Highlights
The Aussie Dollar is trading on a stronger footing against the greenback this morning as investors continued to respond to Friday’s bearish US nonfarm payrolls report which has casts doubts on the nation’s economic prospects and cooled down expectations for a Federal Reserve rate rise this year. Moreover, the upbeat jobs advertisement data in Australia released earlier today added to gains in the home currency, pushing the Aussie Dollar – US Dollar higher. Job advertisements rose at the fastest pace in fifteen months for September. In the session ahead, investors will keep a tab on US economic reports for further direction.
With the US jobs report out of the way, market focus will shift towards Reserve Bank of Australia’s monetary committee decision scheduled tomorrow. Market participants will look for signs whether the RBA diverges from its current policy stance in the face of continuing worries about growth in its major trading partner nations, especially China.