UK PMI Services data fell slightly to 53.9 in September, a slight miss on the forecasts and down from August’s 54.3 print. The report also revealed that the pace of employment increases rose, input costs strengthened robustly, but output costs slowed to a 15-month low. The data impact was modest as markets focussed on the Conservative Party Conference finale.
Theresa May’s speech contained no reference to the “Chequers” proposal and the rhetoric used gave some reassurance to Sterling sentiment despite lingering concerns of party divisions and negotiation difficulties. The Pound benefitted from a renewed rise in oil prices; Brent crude closed in on 4-year highs, but Sterling only briefly moved above 1.3000, before retreating to 1.2925 in the wake of a US Dollar surge. The Euro retreated to the 1.1270 area and settled overnight.
The US Dollar is stronger today and the Dow at a record high as jobs numbers came out stronger yesterday across the pond. 230,000 jobs were created versus an expected 184,000 which elevated the Greenback.
The data boosted confidence in the growth outlook and also reinforced optimism surrounding Friday’s employment report. Chicago Federal Reserve (FED) President Evans stated that the policy stance is still slightly accommodative and that rates should continue to increase until policy becomes mildly restrictive. In this context, he was comfortable with a further hike in December.
After the New York close, Fed Chair Powell stated that interest rates needed to gradually move towards normal and that they may need to be increased past neutral. Powell’s hawkish rhetoric triggered another lurch lower with the USD testing the EUR around the 1.1500 level with a dip below this triggering sharp stop-loss sales and lows near 1.1460 before a slight recovery this morning.
Data wise later today, Initial Claims are due seconded by Challenger Job Cuts, Factory Orders and the speech by Federal Open Market Committee’s (FOMC) R.Quarles.
The Euro weakened to around the 1.1500 area yesterday due to a strong dollar and Italian and German yields gaining strength. Euro-zone final PMI readings came in on consensus and retail sales fell short of market expectations meaning the Euro carried on its slow decline versus the dollar to a low of 1.1470.
Italy’s deputy PM Di Maio confirmed the budget deficit target of 2.4% and confirmed the government is considering reducing the deficit for 2020 and 2021. Theresa May confirmed the UK would leave the EU with no deal if it needs to, which has put pressure on EU officials ahead of more Brexit talks.
Virtually no data is due out today which means the Euro is at the mercy of news from Italy and the strength of the pound and the dollar.
Data to watch:
13:15 USD Fed’s Quarles speech
14:00 USD Factory Orders (MoM) (Aug)
14:00 CAD Ivey Purchasing Managers Index (Sep)
14:00 CAD Ivey Purchasing Managers Index s.a (Sep)
23:30 AUD AiG Performance of Construction Index (Sep)
23:30 JPY Overall Household Spending (YoY) (Aug)