Contracting Construction Sector

Weak construction data weighs on the pound, while the dollar gains as the euro falters ahead of today’s all-important services PMI releases

Previous Day's Market Highlights

Sterling lost ground on Monday, losing around 0.3% against both the dollar and the euro, after data showed the construction industry falling into contraction. PMI figures for February fell to an 11-month low, at only 49.5, causing further fears to mount that a global economic slowdown is spreading to the UK. Also weighing on the pound was a lack of follow-through on optimistic Brexit stories that broke over the weekend. However, negotiations continue between the UK and EU, with confirmation that the EU’s Chief Negotiator Michel Barnier will meet members of the Government today as the two parties attempt to renegotiate the Irish backstop.
 
Elsewhere, markets struggled for direction and largely shrugged off a Wall Street Journal report that a US-China trade deal could be close, though the risk-sensitive Aussie and Kiwi dollars did gain modestly. Meanwhile, the dollar traded close to its highest level in two weeks, as the greenback strengthened across the board despite comments from President Trump that the dollar was getting too strong. As a consequence of the dollar’s move, the single currency fell towards the key $1.13 level, despite above-forecast producer price index figures.
 
Away from FX, European markets gained as equity markets took more credence from the WSJ trade deal reports. The pan-European Stoxx 600 added 0.25%, with London’s FTSE 100 gaining by a similar margin. Across the pond, US markets closed in the red, weighed down by struggling healthcare stocks. The benchmark S&P 500 lost 0.4%. Finally, crude oil prices were underpinned after a Reuters survey showed OPEC supply falling to a 4-year low last month, both Brent and WTI added more than 1.5%.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1630 1.1724 1.1312 3.51%
GBP/USD 1.3165 1.3350 1.2773 4.32%
EUR/USD 1.1323 1.1440 1.1233 1.81%
GBP/AUD 1.8609 1.8725 1.7990 3.93%
GBP/NZD 1.9385 1.9542 1.8660 4.51%
GBP/CAD 1.7561 1.7630 1.6973 3.73%

Today's Market Highlights

Today’s focus will lie with the release of services PMI surveys from the eurozone, UK and US. The former is expected to remain steady at 51.4, showing modest expansion in the eurozone services sector, though the data is unlikely to eradicate fears of a broader economic slowdown. In the UK, expectations are for the survey to fall to exactly 50, straddling the boundary between expansion and contraction, and hovering close to an 18-month low. With the services sector representing approximately 80% of the UK economy, stagnation or contraction in the industry would likely weigh on the pound. The final services figure comes from the US, with expectations for the ISM non-manufacturing survey to pick up to a level of 57.2, providing further evidence of the US economy outperforming global peers.
 
Elsewhere, the Reserve Bank of Australia kept rates on hold overnight while striking a familiar tone, emphasising that low rates are supporting the economy and that progress towards economic targets is expected to be gradual. In reaction, the Australian dollar traded broadly unchanged. Other focuses today include January’s retail sales numbers from the eurozone, a key gauge of consumer sentiment and the health of the broader economy as well as new home sales figures from the US, expected to fall modestly from the previous release. The monthly US budget statement may also attract some attention, with the budget deficit expected to narrow to its lowest level in a year.
 
Finally, a plethora of central bank speakers are due, with most attention likely to fall with Bank of England Governor Carney’s testimony to the House of Lords and Reserve Bank of Australia Governor Lowe’s speech on the domestic housing market, which remains on shaky ground. Markets will also hear from the Fed’s Kashkari and Barkin as well as the Swiss National Bank’s Zurbrugg

Today's Economic Calendar

Time Currency Release Consensus Previous
09:00 EUR Services PMI (Final) 52.3 52.3
09:00 EUR Composite PMI (Final) 51.4 51.4
09:30 GBP Services PMI 50.0 50.1
10:00 EUR Retail Sales (y/y) 1.2% 0.8%
15:00 USD ISM Non-Manufacturing PMI 57.2 56.7