Currency markets find themselves in a bit of a holding pattern as we open up Europe this morning. Traders were non-plussed by yesterday’s lull in proceedings but will surely get back on the horse today as important services data kicks off an important 3-day period on the data front.
Following Monday’s dismal non-manufacturing ISM release, eyes will most certainly be fixed on the services measure due this afternoon at 3pm. The market is once again expecting a tick higher however, something that could easily be disappointed once again. Services data is also due from the Eurozone and the UK throughout the morning with little weather related peril expected there.
Weather was not a factor as GBP drove higher on the session following January’s construction PMI announcement. The fortunes of the construction sector continued to improve with January’s housing activity increasing at the fastest rate in over a decade. Residential, commercial and civil engineering projects are all growing at multi-year record rates and this increased confidence is leading to a marked improvement in sector employment. The current trend of employment is the most positive since 2008. Lead times from suppliers have been highlighted as a concern moving forward; suppliers cannot fill demand as quickly as they get it, which could lead to a rise in costs. For now we will look at it as a natural break on output.
Sterling does remain lower on the week however following the slight slip in manufacturing on Monday. There is the likelihood that tomorrow’s Bank of England meeting could cause some to bet on a dovish statement to the Bank’s inevitable policy hold. We still maintain that the majority of any change to forward guidance will be made at this month’s Quarterly Inflation Report and not tomorrow, but a reiteration that changes are likely to be made could see sterling selling.
Tomorrow’s ECB meeting, and the prospect of a slither-like cut in interest rates, has kept the euro from getting too feisty this week. I doubt that we will see any change from the bank this week but further deflationary pressures will see some movement next month in all likelihood. Today’s retail sales numbers are expected to be poor, showing that the European retail sector failed to enjoy its Christmas. Sales are expected to fall by 0.7% on the month.
Away from the prospects for the service sector, the much-maligned ADP jobs number from the US will be closely watched. The euphoria of last month’s 238,000 number, a 13 month high, was swiftly loss in the horror of the following Friday’s poor payrolls number. This month’s figure, likely weather affected, may be usurped by any revision to that 238,000 increase; which number was correct? We expect similar motives on Friday during the payrolls report. ADP is due at 13.15 GMT.
