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BOE give ‘no-deal’ warning

BOE give ‘no-deal’ warning

GBP

UK Services PMI data rose to 29.0 in the final reading, better than previous estimates of 27.8 and significantly better than April’s all time low of 13.4. New business declined sharply again as corporate spending was reined in and employment figures also declined sharply with an increased number of redundancies. Preliminary analysis of the data set would suggest that the UK recovery lagged behind the Eurozone as domestic re-opening measures were more limited. The Pound dipped lower after market open following reports that Bank of England Governor Bailey had warned major UK banks to step-up preparations for a no-deal Brexit scenario at the end of 2020. The comments increased market unease over the trade outlook, but Sterling losses were limited and the currency was resilient during the day, especially with an underlying reduction in demand for defensive assets. Sterling settled just below 1.2600 against the dollar while the Euro secured net gains to 0.8925. Underlying Sterling sentiment remained fragile and it retreated to below 1.2550 on Thursday with the Euro around 0.8940 as UK quarantine rules on incoming visitors increased unease over the economic outlook.

USD

The US ADP data recorded a decline in private-sector employment of 2.76 million for May following a revised slump of 19.6 million for April and much lower than consensus forecasts of around 9.0 million. There was a further decline of 719,000 manufacturing jobs during the month and a decline of over 825,000 in the transport and trade sector. There was, however, increased employment in education for the month. Overall reaction to the data was muted despite the substantial beat on expectations as the firm risk tone helped limit demand for the US currency.

The ISM non-manufacturing index recovered to 45.4 for May from 41.8 the previous month and above consensus forecasts of 44.2. The business activity improved to 41.0 from 26.0 as the rate of decline in new orders also slowed considerably. There were, however, further job losses at a pace close to that seen in April while costs continued to increase. The data will maintain expectations of recovery, but there will be concerns that competitive and cost pressures will undermine employment.

The dollar overall remained weak following the data releases as underlying defensive demand remained weak amid expectations of economic recovery. 

EUR

The final Euro-zone PMI services-sector reading was up to from 28.7 to 30.5 and compared with the April reading of 12.0. New business also contracted at a slower pace while employment continued to decline. German unemployment increased to 238,000 for May after a 372,000 increase the previous month but was above consensus forecasts of 200,000 with the unemployment rate at 6.3%. Data maintained expectations of a gradual economic recovery.

The Euro peaked at an 11-week highs at just above the 1.1255 mark before retreating to the 1.12 area to where it currently stands at market open this morning. At todays’ ECB meeting, market experts await further news on the further expansion of the PEPP bond-buying programme by around EUR500bn with President Lagarde’s comments also an important factor for sentiment direction on the common currency.

 

Data to watch

11:45 – EUR – Main Refinancing Rate 

11:45 – EUR – Monetary Policy Statement 

12:30 – EUR – ECB Press Conference 

12:30 – USD – Unemployment Claims

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