UK Service Sector is on the Up
As the day dawns, plenty of economic data points have already crossed the wires. In the UK, Markit services PMI surprisingly advanced in September, and service sector activity in the overall Euro region also exceeded expectations in September. The Eurozone’s retail sales data will be out soon.
To be released later in the US are the ADP report, trade balance data, ISM non-manufacturing PMI and durable goods orders.
Pound Sterling – UK Markets
The Pound has reversed its losses against the US Dollar on the back of data showing that Britain’s power house services sector continued to recover in September after the July decline. Earlier in the session, a report by the British Retail Consortium showed that prices in UK shops dropped at a slower pace in September than August.
Yesterday, Sterling hurtled to a more than 3-decade low level against the greenback, amid concerns that Britain’s departure from the EU could be rocky and is likely to leave a permanent scar. The Pound also struck a fresh 3-year low against the Euro. Market participants are particularly focusing on the uncompromising tone of the British Prime Minister, Theresa May. They are worried that her quest to split entirely from the single market in order to retain control over immigration could cause an exodus of banks from London - which will then have to relinquish its title of being a “global financial hub”.
US Dollar – US Markets
The greenback is trading weaker against the Euro this morning. The US ISM and Markit services purchasing managers’ index are expected to generate a lot of attention when they’re released later today. On top of those, we will see the factory orders data, which is likely to reflect a slowdown in the US manufacturing sector, and also the US trade balance and ADP employment data which will help to gauge America’s economic strength.
Yesterday, the US Dollar traded higher against its major peers, following hawkish comments from 2 Fed officials: Richmond Fed President Jeffrey Lacker stated that there is a strong chance for an increase in interest rate by December, and Chicago Fed President Charles Evans was rooting for an interest rate rise by the end of the year, provided US economic data remains supportive. Separately, the IMF lowered its economic growth forecast for the US economy to 1.6% from 2.2% in 2016.
Euro – European Markets
The shared currency is trading higher against the US Dollar and the Pound this morning. Data released earlier showed that the Eurozone’s service sector activity advanced more than expected in September. Meanwhile in Germany, near-stagnation in services sector slowed down the overall private sector growth for September. The Italian services PMI dipped to its lowest level since May and the French service sector activity index for September was disappointing. Market participants now await the Eurozone’s retail sales data for August, due shortly.
Yesterday, the Executive board member of the European Central Bank, Peter Praet, warned that a prolonged drop in Eurozone bank stocks could curb lending to firms and individuals, underscoring concerns within the central bank about the adverse effect of an ultra-low interest rate on the region’s weak banks. On the data front, prices of goods leaving the Eurozone’s factory gates dropped in August after rising for the previous 3 months, signaling that inflationary pressures still remain weak in the region.
Other Currencies – Highlights
The Japanese Yen is trading higher against the US Dollar this morning, climbing for the first time in 7 sessions. Earlier, data showed that activity in Japan’s service sector continued to contract for September, moving further beneath the 50-point boom or bust threshold. Categorically, output declined at the fastest pace in 29 months in September, while new orders mostly remained unchanged. Separately, Japan’s consumer confidence index surprisingly advanced last month on the back of improved employment conditions, rising for the second consecutive month and notching its highest level since September 2013.
In other economic news, the Bank of Japan’s closely watched business sentiment survey, known as the Tankan report, revealed that the mood among the nation’s large manufacturers remained unchanged during the third quarter. Meanwhile, services sector sentiment worsened during the period, deteriorating for the third straight quarter and registered its lowest reading since December 2014. But there is some good news - the final reading of Japan’s manufacturing sector activity rose in September.