Steady Sentiment Ahead of Services PMIs

The latest market highlights and our views on the key developments as sentiment is buoyed despite the ongoing coronavirus outbreak; services PMIs are in focus today; and President Trump's impeachment trial is set to conclude with acquittal this afternoon

Previous Day's Market Highlights

Sentiment Buoyed by Receding Virus Fears

Tuesday was one of those days where financial markets threw up relatively little in the way of talking points or notable data releases.

The pound, however, did throw up some excitement, stumbling out of the wrong side of bed in early trading and falling to a year-to-date low below $1.2950. However, cable bounced strongly off the lows in something of a 'V' shaped recovery, with sterling ending the day 0.4% higher.

Elsewhere, markets struck an increasingly risk-on tone, with sentiment steady amid the ongoing coronavirus outbreak. In Europe, the pan-continental Stoxx 600 closed at session highs with a gain of 1.6%.

Across the pond, the US benchmark S&P 500 closed 1.5% higher, with all sectors - barring utilities - ending the day in the green. Other major US indices also ended the day higher, with the tech-heavy Nasdaq adding more than 2% to close at a fresh all-time high.

The solid performance in US equity markets, and improving risk appetite, saw both antipodeans gain ground. Meanwhile, safe-haven FX faced headwinds, resulting in the Japanese yen shedding 0.6%, and the Swiss franc dipping 0.4%.

Bond yields also rose - a sign of falling demand - as a result of the risk-on feel. US 10-year Treasury yields ended the day around 7bps higher, with similar increases across the curve, while the 3-month 10-year spread has come back into positive territory.

The positive risk mood didn't however, spread to oil markets, where prices tumbled for a second straight day. Global benchmark Brent settled 0.8% lower, while US WTI crude shed 1%, settling below $50bbl for the first time in more than 12 months.

Crude's fall came despite murmurings of OPEC considering emergency output cuts due to a decrease in Chinese demand, with Russian Energy Minister Novak somewhat dampening expectations of any immediate production curbs.


Five Questions Facing Global Markets

The relatively quiet trading conditions seen on Tuesday provides a good opportunity to think about some key questions global investors are battling with at this juncture, including:

  • What impact will the coronavirus outbreak have on Chinese demand and the global economy?
  • Will the UK & EU strike a free trade agreement by the end of 2020?
  • How will the upcoming US presidential election pan out?
  • Will monetary policy be effective in the next downturn?
  • Will the global economy continue to slow, or will 2020 be a year of reflation?

I've explored these themes in more detail in a video outlook for the month ahead here, and in my full monthly outlook here.

As always, your thoughts on these themes - or any others - are always most welcome.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1795 1.1923 1.1632 2.44%
GBP/USD 1.3015 1.3209 1.2941 2.03%
EUR/USD 1.1035 1.1172 1.0992 1.61%
GBP/AUD 1.9320 1.9753 1.8766 5.00%
GBP/NZD 2.0085 2.0435 1.9544 4.36%
GBP/CAD 1.7300 1.7480 1.6918 3.22%

Today's Market Highlights


As is customary for the third day of the month, it's all about services PMIs today.

From the eurozone, January's final PMI report is set to confirm a modest pullback in the index, with expectations for an unrevised print of 52.2. The composite PMI - which accounts for output across the economy - is also expected unrevised at 50.9.

Meanwhile, in the UK, the final services PMI is set to confirm the post-election 'Boris bounce' seen in the economy last month, with an unrevised reading of 52.9 expected; representing a 16-month high for the index, and confirming the survey's biggest 1-month jump in more than three years.

Across the pond, the all-important ISM non-manufacturing PMI - which represents around 70% of the US economy - is expected to show the services sector continuing to expand at a healthy clip in January, with a reading of 55.0 expected.

Such a print would serve to confirm that the FOMC will remain on hold for the foreseeable future, given that monetary policy alterations are unlikely barring a significant economic downturn.  It will, however, be worth paying attention to the employment sub-component of the non-manufacturing report ahead of Friday's nonfarm payrolls release.


ADP Employment Change

Speaking of payrolls, this afternoon's ADP employment change report - expected to show 156,000 jobs added to the economy last month - is also a semi-reliable indicator of Friday's jobs report. The expected 156k print would represent a continued healthy pace of hiring in the US labour market, though the correlation with Friday's official payrolls report remains somewhat dubious.

Anything Else to Look Out For?

  • Elsewhere, the latest trade reports are due from both the US and Canada, though neither should be major market movers.
  • Meanwhile, the impeachment trial of President Trump concludes today, with the Senate near-certain to vote for Trump's acquittal
  • Today's central bank speaking calendar is busy, with remarks due from ECB President Lagarde, ECB Chief Economist Lane, and BoC Senior Deputy Governor Wilkins


Today's Economic Calendar

Time Currency Release Consensus Previous
9.00am EUR Services PMI (Jan F) 52.2 52.2
9.30am GBP Services PMI (Jan F) 52.9 52.9
1.15pm USD ADP Employment Change (Jan) 156k 202k
3.00pm USD ISM Non-Manufacturing PMI (Jan)