The UK PMI services index was revised up to a final January reading of 53.9 from the flash reading of 52.9 and the December reading of 50.0. The magnitude of the revision was unusual and suggested an on-going improvement in sentiment with the overall index at a 16-month high as the composite index also strengthened. New business increased strongly on the month and companies were looking to boost employment and overall sentiment was the highest since May 2015. The data boosted confidence in the outlook and further curbed the potential for any near-term Bank of England cut in interest rates. Sterling moved higher following the data, but failed to hold above 1.3050 and lost ground during the US session as markets again fretted over tough negotiations with the EU over trade and financial services.
The Pound trades below the 1.3000 this morning against the Dollar and just above the 1.18 against the Euro.
The US trade deficit declined slightly for 2019, the first decline for six years as the deficit with China narrowed. The ADP data recorded an increase in private-sector jobs of 291,000 for January, substantially above consensus forecasts of 160,000 and there was only a marginal December downgrade to 199,000 from 202,000. According to Moody’s analytics, the total was likely to have been boosted by mild weather as the construction sector recorded net growth of 47,000 as seasonal layoffs were less than usual. Nevertheless, the ADP boosted confidence in the US outlook and the dollar secured fresh buying.
The ISM non-manufacturing index strengthened slightly to 55.5 from a revised 54.9 the previous month and slightly above market expectations. The business activity index strengthened to 60.9 from 57.0 and there was growth in new orders, but order backlogs continued to decline and employment growth slowed. Expectations of firm growth continued to underpin the US currency with the dollar index posting fresh 2020 highs as the Euro dipped to just below 1.1000.
The final Euro-zone PMI services-sector index was revised up to 52.5 from the flash reading of 52.2 with the German index posting a 5-month high. Employment also increased on the month, although order backlogs declined marginally. Retail sales data was weaker than expected with a 1.3% December decline.
ECB President Lagarde has stated that the coronavirus is adding another layer of uncertainty, although the threat of a US-China trade war had receded.There is little change this morning with the Euro close to 1.1000 figure against the Dollar as German industrial orders posted a 2.1% December decline.
Data to watch
08.00 EUR – ECB President Laragde speaks
10.00 EUR – EU Economic Forecast