UK service sector holds firm in Q1
There was some good news from the UK yesterday as February services PMI saw the headline balance recover from January’s 16-month low of 53.0 to rise to 54.5, beating market expectations. Of note was the new business orders accelerated (55.1 vs 53.3). Sterling moved slightly higher but is still weigh down by the Brexit uncertainty.
Overnight the BRC sales monitor climbed 0.6% on year in February, exceeding expectations for an increase of 0.5% and was unchanged from the January reading. However, when measured across the same shops as the previous year, it fell by 1.1 per cent in the three months to February, which is well below the 12-month average.
Pound Sterling – UK Markets
The Pound saw a slight drop against the Euro, just about hanging in the €1.12 mark. Similarly, Sterling has seen a slight drop against the US Dollar too, with the exchange rate barely keeping at $1.38.
The UK’s engineering giant GKN may be sold to Melrose Industries, a firm that specialises in buying up industrial companies it believes are undervalued and restructuring them before selling them on. Melrose has offered £7.4bn for the 259-year-old firm, however the deal is being choked by 16 members of parliament, based on the Pension Regulator that warns of concerns towards whether the company would be able to fund its pension scheme. The deal could provide a blow to the UK economy, as GKN, one of the UK’s largest industrial firms is likely to be broken up and sold to overseas owners. Bosses of both companies are due to appear before the parliamentary committee this Tuesday.
The Pound is set to remain steady as the Brexit talks move along, proving to be impenetrable even by May’s recent speech, which has barely affected the Pound’s worth within the international markets.
US Dollar – US Markets
The Euro remains steady against the US Dollar, exchanging at $1.23. The US Dollar Index (DXY), which measures the strength of the Dollar against six major competitor currencies, saw an increase and sits at 90.01.
The U.S President Donald Trump’s recent announcement about plans to introduce high import tariffs for steel and aluminium sparked realistic trade war concerns over the weekend. However, this Tuesday the fears seem to be easing over. The Dollar is seen to be holding steady against the other major currencies. DXY, which is currently measuring at 90.01, proves the statement. International markets have took the view that Trump’s planned tariffs are in fact a negotiation tactic that is aimed to push Mexico and Canada to sign a new version of the North American Free Trade Agreement, or NAFTA.
US February non-manufacturing PMI has exceeded observers’ expectations and currently sits at 59.5%. Yes the economic activity in the US non-manufacturing sector fell in February to 59.5%, down from 59.9% in January, however this reading still represents the 97th consecutive month of growth, according to the institute of Supply Management, as the market has expected a February reading of 58.9%.
Today the market will keep a close eye on the US data ahead of Friday’s key job report for further signs of underlying growth. Today we have the release of the factory orders along with the durable goods. In addition, there will be a lot of focus on US Fed speakers. Outgoing NY Fed President William Dudley will take part in a roundtable discussion, while Fed Governor Lael Brainard and Dallas Fed President Robert Kaplan are also scheduled
Euro – European Markets
The Euro remains steady against the Pound, with the exchange rate set at £0.89.
As trade war concerns ease, the European Union remains alert and holds on to their stand of retaliation in case of the tariffs’ go-ahead. The EU’s retaliatory list targets important from the U.S of jeans, shirts, cosmetics, motorbikes and leisure boats worth around 1 billion euros. Products such as orange juice, corn, bourbon whiskey are likely to total up to a close to a billion euros range too. Other imports are also mentioned, totalling up to an estimate of 2.8 billion euros. The European Commission President Jean-Claude Juncker and his leadership team are due to discuss the retaliation proposal at a meeting on Wednesday.
After the European markets close, Bank of England Chief Economist Andy Haldane will be speaking at an event in London. The markets attach around 75% probability of an interest rate rise in May, markets will be keeping a close eye on what he says.
Other Currencies – Highlights
Sterling remains steady against the Australian Dollar, with the exchange rate at 1.78 AUD. The Pound continues to steadily increase against the Japanese Yen, which now stands at 146.66¥.
The international markets have responded positively to the easing of high tariff introduction on steel and aluminium imports. The Asian saw a slight recovery in stocks this Tuesday, with the Nikkei 225 up 1.8%, the ASX 200 up by 0.8% and all other regional bourses higher.
The Australian Dollar has remained steady, with only minor retail sales and trade figures appearing a little under forecast. After yesterday’s uncertainty regarding the impact of import tariffs, today’s ease on speculations of global trade wars has left the Reserve Bank of Australia at ease, which is also proven by no changes to their monetary policy.