Sterling hoping for Services stimulus
UK construction PMI for January declined to 50.8 from 52.8, well below consensus forecasts and the lowest figure since last April. Commercial activity has been undermined by uncertainty but companies are still optimistic about the 2019 outlook. The Conservatives are still trying to find a compromised Brexit proposal and EU officials maintained their tough stance. Angela Merkel stated that she did not want to re-open the Withdrawal Agreement and the Irish government offered no support to the UK’s position.
Sterling was limited when futures markets suggested a UK rate hike by December had declined to around 55% probability from 60% last week. The Pound briefly spiked in US trading but failed to hold above 1.3100 against the Dollar while the Euro found support above 1.1455 in choppy conditions. BRC data recorded a 1.8% annual increase in like-for-like sales from -0.7% previously but the markets were unmoved. Sterling opens below 1.3050 against the Dollar and 1.1414 on the Euro.
The Dollar initially held steady and gradually gained some traction yesterday. Although there are important reservations over the US outlook and the auto sales data was below consensus expectations, the employment and ISM manufacturing data last week helped underpin sentiment and the Dollar also gained from a lack of confidence in other major currencies. After initial gains, oil prices moved sharply lower which undermined commodity currencies and provided further underlying US Dollar support. The US employment trends index declined to 109.56 from a revised 110.96 previously which ran counter to recent employment data. Factory orders declined 0.8% for November, but this was delayed data and had little impact.
Cleveland Federal Reserve (Fed) President Mester reiterated that the central bank was in a “wait and see” mode. Although rates may need to rise slightly further if her forecasts are to be validated, tighter financial conditions and a downturn in confidence pose risks. The Dollar lost ground against commodity currencies on this morning, with EURUSD around 1.1415.
The EU PPI figure fell 0.8% month-on-month and increased 3% year-on-year, still behind December’s number and below the market’s expectation. The numbers were also followed up by the Eurozone Sentix investor confidence index figures which showed a decline for the region, the lowest reading since late 2014 and reinforcing fears over growth.
Yesterday was fairly stable, with EURUSD dipping to lows of 1.1425 before recovering slightly and, versus the Pound, the pair struggled around the 1.1400 mark before regaining slight strength get above 1.1430.
Data today is mainly PMI numbers for January, with the German, EU and UK numbers of particular interest. The final piece of data to look out for will be the year-on-year retail sales for the EU, but otherwise it’s a fairly quiet day.
Data to watch:
00:30 USD FOMC Member Mester speech
00:30 AUD Imports (Dec)
00:30 AUD Exports (Dec)
00:30 AUD Retail Sales s.a. (MoM) (Dec)
03:30 AUD RBA Interest Rate Decision (Feb 5)
03:30 AUD RBA Rate Statement (Feb)
08:15 EUR Markit Services PMI (Jan) (Spain)
09:00 EUR Markit PMI Composite (Jan)
09:30 GBP Markit Services PMI (Jan)
10:00 EUR Retail Sales (YoY) (Dec)
14:45 USD Markit PMI Composite (Jan)
14:45 USD Markit Services PMI (Jan)
15:00 USD ISM Non-Manufacturing PMI (Jan)