Previous Day's Market Highlights
Sterling fell to a 2-week low on Tuesday, after services PMI figures for January showed expansion in the sector had fallen to a two-and-a-half year low with the index reading just 50.1 – barely inside expansionary territory. The release sparked fears of an economic slowdown spreading to the UK with GDP for the first quarter likely to be stagnant as the services sector makes up approximately 80% of the figure. In addition, the accompanying report showed that political uncertainty was beginning to have an increasing impact on investment decisions in the services industry, once again flagging businesses concern over the prospects of a no-deal exit from the EU. In reaction to the data, the pound fell approximately 0.7% over the course of the day with sterling tumbling through the key $1.30 support level and wiping out most of the pound’s gains this year against the greenback.
Elsewhere, PMI figures from the eurozone as a whole were broadly in line with forecasts though some shine was taken off of the release after composite PMIs for France and Italy fell to multi-year lows. The single currency lost around 0.25% in reaction to the data which has continued the recent run of poor releases from the multi-country bloc. Across the pond, ISM non-manufacturing figures showed a below-forecast, but still positive, rate of expansion. The dollar came under significant demand in the afternoon session, with the dollar index chalking up its fourth straight day of gains while the Aussie dollar gave up half of its overnight gains after the less-dovish than expected RBA meeting.
In other markets, European equities recorded strong gains with the pan-European Stoxx 600 adding 1.5% to reach its highest level in the past 12 weeks. The UK’s FTSE 100 also closed in the green, adding over 2%, with gains aided by a weaker pound. In the US, equity markets gained around 0.5% after a string of upbeat corporate results fuelled optimism ahead of President Trump’s State of the Union address. In the address, the President confirmed a second summit with North Korea at the end of February as well as appealing for political unity and vowing once again to build a border wall - major markets were unmoved by the speech. Finally, oil prices struggled for direction after falling US factory orders fuelled concerns that demand would be lower than expected in coming months, though markets remain confident that OPEC-led supply cuts will balance the market.
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Today's Market Highlights
A quiet economic calendar sees no notable data releases from either the UK or eurozone over the coming day hence the near-term direction of the pound is set once again to be determined by Brexit-related news flow especially in advance of PM May’s trip to Brussels on Thursday. Though the message from the EU is likely to remain the same, that the Withdrawal Agreement is not up for renegotiation, any conciliatory comments may result in a boost for the pound.
The economic calendar is busier in the North American session, with the latest set of trade figures from the US as well as Ivey PMI from Canada both scheduled. The former is expected to show a modest narrowing of the trade deficit while the latter, a measure of economic activity in a variety of industries in Canada, is likely to pull back by 3 index points from last month. Overnight, the latest labour market report from New Zealand will be in focus, especially after vastly surpassing expectations last time. Consensus is for a slight increase in the unemployment rate and a moderation in employment change which are likely to reinforce the RBNZ’s dovish stance that slack remains in the labour market.
Finally, central bank speakers are limited ahead of tomorrow’s Bank of England meeting, with only the Bank of Canada’s Lane scheduled to speak.
Today's Economic Calendar