Mind The Gap; mid morning London session update before the New York open

Aug 6 • Forex News • 2161 Views • Comments Off on Mind The Gap; mid morning London session update before the New York open

UK services PMI rockets to 60.2 beating expectations of 57.4

offAs reported in our 'Between The Lines' section this morning the UK services PMI was a high impact news event that had the potential to affect market sentiment. The number was of particular relevance for 'cable' traders who witnessed a break out to the upside as cable breached R1 shortly after the publication. The number exceeded even the most optimistic of predictions. Coming in at 60.2, beating the consensus of 57.4, the number reached a six year high and is the highest number reached since before the financial crisis.

As an indication of just how far the number has ballooned, as early as February 2012 the services PMI number was at 51.8, whilst the average reading over the past six years is 56.1. These numbers also follow on from the optimistic manufacturing and construction PMIs published by Markit last week.

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, commented:

The services sector stormed to a six year high in July, registering levels of performance not seen since before the financial crisis. Combined with the manufacturing and construction figures, this is the clearest sign yet that the UK economy is experiencing a broad based economic recovery and has the momentum to deliver continued growth.

The seventh month of sustained, accelerated growth in services was underpinned by improved market conditions both domestically and abroad. Business confidence for UK services is now the highest it has been for 15 months, allowing businesses to expand, develop new products and increase their fees.

The steep rise in new business and the sharpest rise in backlogs of work since 2010 have put some pressure on capacity, giving firms the conviction to take on more staff and increase wages, which have been stagnant for a long time. Taken together, these could signal a significant month in the turnaround of the fortunes of UK plc.

Europe's service PMI also beat the consensus of analysts polled, coming in at 49.8 ahead of the 49.6 predictions. Whilst not as significant as the UK's service PMI rise the Europe figure indicates that Europe's service PMI has arrested contraction.

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Andrew Harker, senior economist at Markit and author of the report, commented;

The Spanish service sector came close to a change of momentum in July, with the rate of contraction in activity easing further during the month. Should this current trend be built upon, we could be in line to see a return to growth of GDP by the end of the year. This remains far from assured, however, with service providers continuing to highlight the effects of the economic crisis in their responses to the latest survey.

China's PMI, the non-manufacturing Purchasing Managers’ Index, rose to 54.1 last month from 53.9 in June, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing stated. A separate report from HSBC Holdings Plc and Markit Economics shows that their services PMI was unchanged in July at 51.3.

The only other high impact news event/publication was published in the early morning/overnight session; figures released in Australia indicated flat retail sales growth, this was a significant miss given that the prediction was for a 0.4% rise.

Market overview at 10:30 am UK time

The main markets reaction to the improved services PMI across Eurozone and the UK has been bullish. The UK FTSE is up 0.40%, the DAX is up 0.21%, the CAC is up 0.34%, whilst the EU STOXX index is up 0.38%. In the overnight session the Nikkei closed down 1.44%, the Hang Seng closed up 0.14% and the CSI closed up 1.38%. The ASX 200 closed down 0.11%, the poor retail sales number for Australia affecting sentiment.

The DJIA equity index future is down 0.01%, as is the SPX, whilst the NASDAQ is currently up moderately by 0.06%. Many analysts will be looking out for a delayed reaction to the extremely poor NFP numbers produced by the USA on Friday when New York opens.

ICE WTI oil is currently down marginally by 0.01% at $106.93 per barrel, whilst NYMEX natural is down 0.54% at $3.33. COMEX gold is up marginally by 0.02% at $1310.70 per ounce. Silver spot on COMEX is down 0.31% at $19.85 per ounce.

Forex focus

The dollar fell by 0.6 percent to 98.37 yen early in the London session after losing 0.6 percent on Aug. 2nd. It fell 0.2 percent to $1.3296 per euro. Japan’s currency appreciated 0.4 percent to 130.78 per euro. Bloomberg’s dollar index, tracking the greenback versus its ten major counterparts, fell by 0.2 percent to 1,026.53 after sliding 0.6 percent on Aug. 2nd. The kiwi slid 0.5 percent to 78.03 U.S. cents, approaching the one-year low of 76.84 touched June 24th.

High impact news events and policy decision publications that could affect market sentiment.

The ISM non manufacturing PMI is published in the New York session, the anticipation  is for a one point rise from 52.3 to 53.3. It's a survey of approx. 400 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.

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