EUR falls, USD and GBP looking strong
Markets appeared to be in a holding pattern yesterday ahead of the first non-farm payrolls report of the year later today. The dollar maintained its upward momentum but equity and commodity prices were shaky as a bout of nerves seems to have been suffered ahead of the closely watched US employment figures. This month’s release seems even more eagerly anticipated in the wake of exceptionally strong private sector payrolls data earlier this week, and yesterday’s US weekly jobless claims data did nothing to dampen expectations of a positive reading, with the four-week average hitting its lowest in more than two years.
Indeed, the Dollar’s strength has seen it breach below the $1.30 mark against the euro for the first time in 5 weeks. This was in spite of German factory orders leaping 5.2% in November, their strongest growth since January 2010. Given the divided nature of eurozone performance, it was fitting that the data showed Germany’s industrial sector benefitting from higher domestic and foreign non-eurozone demand, whereas orders from other eurozone countries were falling. The Euro continues to polarise investor opinion, with an increasing number unwilling to give it the benefit of the doubt. Were it the currency of just Germany and those countries with whom it shares a land border, it would likely have made fresh record highs and would be trading today above $1.60 against the Dollar. Were it, instead, the currency of those countries with a Mediterranean coastline, it would likely be trading below parity against the Dollar. It’s current rate may seem like a convenient mid-point between the two extremes but it is by no means a stable equilibrium.
Yesterday’s UK PMI index for services completed the trio of PMI indices for the week, showing a sharp fall to the 49.7 mark, indicating a contraction in activity, and making for the lowest reading since April 2009. Though the manufacturing reading released on Tuesday was very strong, construction and services PMI data has disappointed on Wednesday and yesterday. Having said that, the services PMI covers transport and communications, financial intermediation, business services and hotels and restaurants. It’s hard to pick any of these sectors which would have benefitted from the coldest December in 100 years, so on balance it is probably not a surprise to see a decline in activity this month. Further, if last winter’s bout of cold weather is a guide, when the data recorded a drop and then a strong rebound the following month, then it appears there may have been a modest softening in underlying activity which is being significantly overstated in this week’s drop.