Pound limited by Barnier’s Barriers
The UK PMI services declined to a 16-month low of 53.0 in January from 54.2 previously, failing to meet expectations of 54.0. However, business confidence strengthened to a 10-month high and upward pressure on costs eased.
Subdued data undermined Sterling and on-going political uncertainty with the resumption of Brexit talks also contributed to the malaise. EU chief negotiator Michel Barnier warned that trade barriers, of some form, were inevitable if the UK left the single market and customs union. Concerns about a potential breakdown of EU-UK Brexit negotiations and recent comments from key officials indicate that reaching a transition deal will likely be a very difficult process have changed Sterling sentiment sour.
The Pound dipped sharply to lows below 1.4000 against the Dollar and the Euro advanced to around 1.1275 with the slide in global equities markets also a negative Sterling factor. The BRC reported a 0.6% retail sales increase in the year to January, unchanged from the previous reading with Sterling still on the defensive on Tuesday as it opened at 1.3965.
The US PMI services-sector index fell to 53.3 while the new orders reading advanced to a four-month high. The ISM non-manufacturing index beat consensus expectations and peaked for a two-year high, strengthening to 59.9 from 56.0 in December. The data was in line with recent optimism surrounding the Dollar in terms of the growth outlook and maintained expectations that inflation pressures were on the rise.
After a year of tweeting by Donald Trump about the stock market boom, almost labelling that as his greatest success, the S&P 500 saw its biggest weekly sell-off in two years. Further, the FTSE 100 index has opened down 253.95 points, or 3.5%.
Today’s calendar is thin and likely to be overshadowed by the equities story.
The final reading of Eurozone PMI services was revised higher to 58.0 from 57.6 while the composite output index produced an 11-year high of 58.8. Employment maintained a strong tone while output charges increased at the fastest pace for over nine years. Input costs strengthened by the largest amount for close to six years.
European Central Bank (ECB) President Draghi’s speech was notably optimistic on the growth outlook, although market ears focussed on his inflation comments. “New headwinds have arisen from the recent Euro volatility and that implications for the medium-term inflation outlook needed to be watched closely”. The Euro retreated after Draghi’s comments, although it found support below 1.2400 as heavy losses in equity markets then dominated.
Data to Watch:
03:30 AUD RBA Interest Rate Decision
03:30 AUD RBA Rate Statement
09:00 EUR German Buba President Weidmann speech
13:30 USD Trade Balance (Dec)
13:50 USD Fed’s Bullard speech