Brexit deadlock calls for extra time
UK services PMI dropped from 51.2 to 50.1, below consensus forecasts and the lowest print for 2.5 years. The new orders dipped into contraction territory. Employment figures printed a modest decline for the first time in over six years with political uncertainty contributing to negative effects. Sterling dropped lower, falling below 1.3000 against the Dollar, which then triggered further short-term selling.
Theresa May announced talks with EU Commission President Juncker and EU Council head Tusk on Thursday. There has been no evidence of any Brexit breakthrough and Conservative Party tensions have increased further. Sterling hit lows around 1.2930 against the Dollar before stabilising while the Euro peaked around 1.1340 before fading. Reports emerged that the government has made plans to prolong Article 50 by eight weeks.
The US ISM non-manufacturing index declined to 56.7 for January from 58.0 the previous month and slightly below consensus forecasts. There was still solid growth across all main components and there was a stronger pace of increases in prices, a notable contrast to the manufacturing release. The PMI services sector reading was confirmed at a four-month low of 54.2 with input prices rising at the slowest pace for twenty-two months while companies looked to increase margins.
The IBD consumer confidence index declined to 50.3 from 52.3 previously and the lowest reading since October 2017. Although there were reservations over potential consumer spending, the data overall was strong enough to maintain expectations of US out-performance. The Dollar maintained a firm overall tone with the EURUSD rate testing 1.1400. The rate traded just below this level in early Europe on Wednesday as the US currency also advanced against commodity currencies.
Despite a strong reading for Spanish PMI numbers, the wider Eurozone PMI figures did nothing to curb fears of the region’s growth. Italian services have fallen into contraction but bond yields have declined.
Some European Central Bank (ECB) policymakers are reportedly disinclined to change the forward guidance on interest rates beyond the third quarter, as it would have an impact on the next ECB President’s term. Versus the Dollar, the Euro continued its downward trajectory from a high of 1.1500 since last Thursday.
Data today is very minimal, German factory orders and French industrial investment being the only two releases in the Eurozone.
Data to watch:
01:30 AUD RBA’s Lowe speech
02:00 USD President Trump State of the Union address
07:00 EUR Factory Orders s.a. (MoM) (Dec) (Germany)
13:30 USD Trade Balance (Nov)
13:30 USD Nonfarm Productivity (Q4)
13:30 USD Unit Labor Costs (Q4)
13:35 CAD BoC’s Lane Speech
N/A NZD GDT Price Index
15:00 CAD Ivey Purchasing Managers Index (Jan)
15:00 CAD Ivey Purchasing Managers Index s.a (Jan)
21:45 NZD Employment Change (Q4)
21:45 NZD Unemployment Rate (Q4)
21:45 NZD Participation Rate (Q4)
21:45 NZD Labour cost index (QoQ) (Q4)
23:05 USD Fed’s Quarles speech
23:30 AUD AiG Performance of Construction Index (Jan)
23:50 JPY Foreign investment in Japan stocks (Feb 1)