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The Marketplace - January 7th 2015
07/01/2015
The US Dollar continues to make gains against its major counterparts as poor Services PMI numbers are released from the UK and the Eurozone.
No key data from the UK today but we will be keeping a close eye on the Euro CPI Flash Estimate this morning and later this afternoon, the US releases ADP Non-Farm Employment figures.
Keep in touch with all live updates by contacting the desk on 0844 815 3240 or ukdesk@transglobalpayments.com
UK Services Sector Follows Construction’s Lead
The UK services sector lost momentum at the end of last year, growing at its slowest rate for 19 months. The Purchasing Managers UK Services PMI slipped to 55.8 in December, down from 58.6 in November, marking its lowest level since May. Despite the slowdown, the sector remains comfortably above the 50-mark which separates growth from contraction.
The pound fell sharply after the data, It weakened against both the Euro and the Dollar, nearing a 17-month low against the Dollar slipping 0.2% lower against the euro. The slowdown was much sharper than economists had expected, and the figures could fuel concerns that the UK economy is too fragile to consider normalising monetary policy.
Some analysts have argued the latest PMI reading is still strong, merely down from unusually high levels earlier in the year and in line with the average seen in the years leading up to the financial crisis. Despite the weaker than expected December reading, volumes of new business continued to rise with survey respondents reporting "favourable" market conditions.
Eurozone offers modest growth in Services sector
The Eurozone service sector remained on a soft track at the end of 2014. Although growth of business activity and new orders was recorded, with trends in both improving on those signalled in November, rates of expansion were only modest in both cases. A further drop in backlogs of work and muted business confidence also highlighted the underlying subdued conditions in the sector.
At 51.6 in December, up from November’s 11- month low of 51.1, the Eurozone Services Business Activity Index remained above the neutral 50.0 mark for the seventeenth month in a row but came in below the flash estimate of 51.9.
Chris Williamson, Chief Economist at Markit said: “The Eurozone economy ended 2014 with its worst quarter for over a year. There’s some relief in that the rate of growth picked up slightly in December, rather than easing further, but the PMI reading was still the second-lowest seen for 17 months, highlighting another disappointing lacklustre performance. GDP looks set to rise by a mere 0.1% in the fourth quarter. The Eurozone will look upon 2014 as a year in which recession was avoided by the narrowest of margins, but the weakness of the survey data suggests there’s no guarantee that a renewed downturn will not be seen in 2015.
Today’s Key Data:
EUR – CPI Flash Estimate: This is critical input for the ECB meeting on January 22nd. Inflation has reached rock bottom levels in November: 0.3% in headline CPI, which is the ECB’s mandate, and 0.7% in core prices. With the fall in oil prices seen mostly in December, there is no doubt that we will see a lower headline number now. Expectations stand at 0% for the year.
USD - ADP Non-Farm Employment Change: The U.S. private sector added 208,000 workers in November following 230,000 jobs gain in the previous month, indicating the slowdown in global economy does not impact US domestic activity. The ongoing improvement in the labour market leads to faster wage growth. A Labour Department report showed compensation per hour increased 1.3% in the third quarter rather than the 2.3% reported in the previous month, and declined 0.9% instead of the expected 2.3% rise. ADP job gain is expected to reach 227,000 in December.
USD – FOMC Meeting Minutes: In the December FOMC meeting, the Fed removed the “considerable time” message regarding rates, but balanced it with its observations and a more moderate outlook. The dollar then got a boost by Yellen, that sounded optimistic about the economy, talked about raising rates in 2015 and did not fear the fall in oil prices. We will now see some of the internal debate around that meeting. Will we see a dovish minutes to counter the bullish tone? Or could it just serve as another dollar driver?
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