UK Services PMI Reaffirms Modest Growth Outlook
The performance of the services sector across the global economy dominates the session today, as investors look for macro updates that could highlight the state of their respective economies. Just now, a monthly gauge of the UK services sector added to evidence that growth in the nation is being primarily driven by expansion in the non-manufacturing sector. Though the December services PMI came in lower than expected, the figures stayed close to the highest level recorded in four months for November.
In the Euro zone, the upwardly revised service PMI print indicated that the economy had a positive closure in 2015. Across the Atlantic, excluding the ISM non-manufacturing index, there is plenty in store, including the ADP employment report, trade balance and factory orders data. However, minutes of the December FOMC meeting will be of utmost relevance.
Pound Sterling – UK Markets
Sterling has partly recovered from its earlier losses against the US Dollar, following positive reports from the UK service industry. The just out survey data revealed that Britain’s services PMI stayed comfortably in the expansionary territory for December, signalling that the nation’s dominant services sector, which accounts for more than 3/4th of the GDP, will continue to contribute to growth in the fourth quarter of 2015. Though the services PMI index suffered a minor setback in December, declining from a four-month peak recorded in the previous month, the performance of the industry is strong enough to stay in the growth territory. Currently, the Pound- US Dollar currency pair is trading below the 1.47 mark.
Meanwhile, the British Retail Consortium earlier in the day signalled that inflationary price pressures are likely to remain subdued in the UK for an extended period, thus putting little pressure on the Bank of England to raise borrowing costs. Overall shop prices in the UK continued to tumble in December for the 32nd consecutive month, against the backdrop of weak global commodity prices.
US Dollar – US Markets
The US Dollar has edged higher against the shared currency this morning, ahead of the publication of minutes of last month’s Federal Open Market Committee rate setting meeting, wherein the benchmark interest rate was raised by a quarter percentage point after holding it close to zero for nearly a decade. The minutes could shed a light about the path of further interest rate increases, especially after the US Federal Reserve Chairperson Janet Yellen reiterated, post the December policy meeting, that tightening would happen gradually from the upcoming year.
On the macroeconomic data front, today’s update of the ISM non-manufacturing index will be closely monitored and expectations are for a small improvement in December as the US service sector remained resilient last year even as manufacturing growth slumped. Additionally, the recent ADP employment report, trade balance figures, final durable goods orders print and factory orders data due for release later in the day will be eyed to gauge the overall health of the economy in the final quarter of 2015.
Euro – European Markets
This morning, the Euro – US Dollar currency pair has drifted lower shrugging off fresh cues from a series of services PMI from the Euro zone and its peripheries, which reflected that a moderate expansion of the wider Euro zone economy is still a viable estimate. Earlier today in Europe, the final reading for the Euro zone and Germany’s services sector was revised up for December. In addition, activity in Italy’s service industry expanded at the fastest pace in over five and half years for December. However, final numbers of French services sector slipped into red for last month. New data showed that Spain’s services sector recorded another robust performance in December, albeit slightly weaker from the prior month. Overall, the Euro region PMIs collectively sends a message that the modest recovery across nations that share the Euro remains on course for continued progress in 2016.
The Euro nudged lower against the greenback yesterday as Euro zone’s consumer prices grew slower than estimated for December, indicating that the European Central Bank will deploy additional stimulus this year to stave off risks of deflation.
Other Currencies – Highlights
Earlier today, the US Dollar – Loonie currency pair soared above the 1.40 mark, driven by weakness in oil prices. The week saw softer Canadian economic data in the form of industrial product and raw material prices which steeply fell for November. Also the divergence in the monetary policy of the respective two central banks is clearly evident in the performance of the Canadian Dollar against the greenback off late. Moving ahead, Canada’s trade report and labour market data scheduled in the remainder of the week could attract traders’ attention. Expectations are for the trade data to print another deficit for November, but the numbers could be smaller than those posted in the previous month. Dismal economic data and until oil prices stabilise, Canada’s economy will remain in trouble and the Bank of Canada will be pressured to lower interest rates again in 2016.
As for today, markets focus will be on the latest FOMC minutes of the December interest rate decision meeting, for any fresh cues regarding future policy moves.