Good morning.
Further proof of a two-speed UK economy due today
The UK’s Construction PMI yesterday joined manufacturing in falling below expectations, however did manage to eke out some mild growth. It’s the turn of services today, with the sector expected to moderate slightly, but still indicate growth that puts it at the forefront of UK economic expansion. The growth of the services sector is the most critical for GBP, as the sector makes up approximately 80% of the UK’s domestic output. Charting recent UK GDP growth against the growth of the services sector and they tell the same story: an economy that is growing, but at a far slower pace than the post-crisis recovery days. The data is due at 09:30 UK time.
Aussie dollar rebounds as signs of inflationary pressure begin to appear
The Aussie dollar rebounded overnight after a string of positive economic data – with retail sales, new home sales and trade balance figures all beating analyst expectations. This data all suggests that there could be underlying growth and inflationary pressure in Australia. The fact that it has not materialised will not necessarily concern the Reserve Bank of Australia at present, as they took action to cut rates earlier this week to a record low of 1.75% and will likely be waiting for the monetary transmission mechanism to do its job and feed into the real economy over an extended period of time. Heading into the European morning, the AUD is higher by approximately 0.6%.
Dollar’s extended weakness takes a breather – but tomorrow’s data could change that
The dollar’s languid performance paused yesterday despite a set of poor economic data from the US including ADP employment change (often seen as a key indicator for Friday’s Nonfarm Payrolls) which missed expectations by a margin of over 20%. It appears that the market is now fully aware of the patchy and hit-and-miss nature of the US recovery at the moment and so was unwilling to push the USD to fresh 15-month lows after what has been a sustained sell-off. Economic news was slightly more favourable later in the day as US Services PMI and ISM Non-Manufacturing data both beat expectations, helping to reinforce a floor under the dollar. However, a sustained trend in either direction will likely wait for tomorrow’s Nonfarm Payrolls release.
Outside of the UK Services PMI today, US weekly jobless figures are due at 13:30 UK time, but it’s likely currency markets will lack commitment ahead of the key US jobs numbers tomorrow.
Have a great day.