Eurozone QE back in focus
The UK services-sector Purchasing Managers index (PMI) index strengthened to 53.6 for September from 53.2 the previous month and was above consensus expectations of no change. Overall business sentiment was still reported to be fragile, but the data did help ease concerns surrounding growth given the influence of services. There were substantial increases across the board, with cost pressures increased to seven-month highs, as well as a continued increase in prices charged. All three PMI releases reported stronger cost pressures, which will maintain underlying pressure for at least a limited tightening of monetary policy.
Ratings agency Standard & Poor’s, however, doubted whether there would be more than a very limited increase in interest rates, with Bank of England rhetoric designed to talk-up the currency. Sterling made only limited gains.
Political speculation flared once again following Theresa May’s Conservative Party speech with concerns surrounding government instability and a weak Brexit negotiating position liable to hamper Sterling. After fading ahead of 1.33, GBPUSD drifted to below 1.3250 while GBPEUR was trading around levels of 1.1261 as UK sentiment remained weak.
US ADP employment data revealed private-sector jobs rose by only 135,000 for September, down from a revised 228,000 the previous month. Hurricanes Harvey and Irma are likely responsible for the majority of the drop and the data continued to suggest a firm underlying labour-market tone, although with some evidence that lower wages growth was curbing jobs growth in smaller companies.
The ISM non-manufacturing index produced a robust increase to 59.8 for September from 55.3 in August. Market consensus was pencilled in at 55.6 and the actual figure was the strongest reading since August 2005. The prices index also strengthened to the highest level since February 2012 while delivery times lengthened sharply.
Yesterday, data reinforced expectations of another Fed interest rate hike in December. The Euro drifted weaker after hitting resistance near 1.1800, but the Dollar overall was unable to gain further momentum with strong growth priced in and caution ahead of Friday’s employment report.
In the Eurozone yesterday, the final PMI services-sector figure for September surprised to the upside, reading at 55.8 from a flash reading of 55.6. This maintains confidence in the growth outlook for the Euro economy and forecasts were helped as input and output prices rose at the fastest pace for five months.
The European Central Bank (ECB) and President Draghi will release minutes today from the September meeting. Only three weeks out from the all-important October decision, this release will bear weight with the potential to move the market. The focus on Quantitative Easing (QE) reinvestment flows have been a centre point in recent talks from ECB members
Further, the Eurozone markets will continue to pay attention to developments in Spain today. Last night, Catalan President Puigdemont spoke on TV and repeated the offer for mediated talks, but he fell short of mentioning if or when he would declare independence. A settlement of the Catalonian declaration of independence will turn eyes back to the recent clouds gathering across the Eurozone political and monetary scene.
Data To Watch:
08:30 EUR European Central Bank’s Peter Praet Speech
11:30 EUR ECB Monetary Policy Meeting Accounts
12:00 GBP (Bank of England) MPC Member Andrew G Haldane Speech
12:15 EUR ECB Benoît Cœuré Speech
12:30 USD Trade Balance (Aug)
12:30 USD Continuing Jobless Claims (Sep 22)
12:30 USD Initial Jobless Claims (Sep 29)
13:10 USD FOMC Member Jerome H. Powell Speech
13:15 USD FOMC Member John C. Williams Speech
14:00 USD Factory Orders (MoM) (Aug)
14:00 USD FOMC Member Patrick T. Harker Speech
17:30 GBP MPC Andrew G Haldane is the Chief Economist at the Bank of England Speech
20:30 USD Fed’s Esther George Speech