The UK service sector maintained its recent run of strong growth during November as incoming new business continued to rise at a rapid pace. Capacity remained under pressure and companies took on extra staff to help service rising workloads. There were also signs of price pressures beginning to build. Input cost inflation hit a nine-month high, while output charges rose to the most marked degree since May 2011. After accounting for seasonal factors, the Business Activity Index recorded a level of 60.0 in November. Although a five-month low, and down from October’s multi-year high of 62.5.
BRC-Nielsen UK Shop Price Index
Overall shop prices reported annual deflation for the seventh consecutive month in November, slowing to 0.3% from the 0.5% decline reported in October. Food inflation slowed to 2.3% in November from 2.7% in October. Non-food reported annual deflation of 2.0% in November from 2.4% in October. Helen Dickinson, British Retail Consortium Director General, said:
[quote]The seventh consecutive month of deflation is great news for hard-pressed households as Christmas gets closer, and confirms that retailers are reading current conditions well and matching the mood in their promotions.[/quote]
Asian markets were mixed in the overnight trading session, with Japanese stocks dropping sharply from a six-year high, while China stocks rose. Overall, most Asian bourses weakened as investors avoided markets ahead of important data due out later this week, including Friday’s US NFP jobs report for November.
China’s services industry grew at a steady pace in November, a private survey from Markit Economics showed on Wednesday, a further indication of strength in the world’s second-largest economy as the government embarks on a sweeping restructuring drive. The HSBC/Markit services PMI stood at 52.5 in November little changed from October’s 52.6.
Germany’s service sector rallies
Germany’s service sector expanded last month at the fastest rate in 29 months. It’s a stark contrast with the declines in France and Italy, underlining the growing differences between Europe’s biggest economies. The German services PMI jumped to 55.4, with firms saying they took on more staff to cope with increased demand.
French service sector PMI drops
There are new fears over France’s economy after activity in its service sector fell last month, according data from Markit. Like Italy the French PMI also came in below the 50-point mark, at just 48.0 in November. That’s a decline on October’s 50.9, showing activity contracted. French firms surveyed by Markit said that new business, backlogs of work and employment fell last month. Optimism among businesses fell to the lowest level since July.
Jack Kennedy, senior economist at Markit, commented:
[quote]A relapse of the French service sector in November underlines the continuing challenges facing companies. Weak demand and confidence again weighed on new business inflows, while jobs were cut at the sharpest rate in seven months. The latest data highlight the risk of a further contraction in GDP during the fourth quarter, which would tip France back into recession. The data indicates that activity across the wider French private sector dropped last month, after growing in October. [/quote]
Eurozone private sector recovery slows as splits deepen
Despite Germany’s resurgence, France and Italy’s decline last month meant that the overall Eurozone private sector grew at a slower rate in November than October. It also suggests that the core countries at the heart of the Eurozone are increasingly diverging. Markit’s November Eurozone Composite Purchasing Managers’ Index (PMI), fell slightly to 51.7 from 51.9 in October. On the upside, that was the fifth month of rising activity in a row. But employment in the Eurozone private sector fell again, for the 23rd month in the row.
Markit’s chief economist, Chris Williamson, said:
[quote]The final PMI data confirm that the euro area’s recovery lost some momentum in November. While we shouldn’t lose sight of the fact that the region is growing again, in marked contrast to the decline seen earlier in the year, it’s clearly a concern that the rate of growth remains so fragile. The survey suggests that the region’s economy is on course to grow by just 0.2% in the fourth quarter, providing December sees the PMI hold at its current level, having expanded by just 0.1% in the third quarter.[/quote]
ADP report expected to show employment stagnated in November
Companies in the U.S. probably added 170,000 jobs last month, the most since June, according to the median estimate of economists in a Bloomberg News survey. The ADP Research Institute will release the report today.
Market snapshot at 10:00 am UK time
U.S. oil prices continued their upward momentum of yesterday, climbing to a one-month high on news that the southern leg of the Keystone pipeline would begin carrying crude oil to Texas refineries next month, helping reduce domestic stockpiles. NYMEX WTI is up 1.18% at $97.17 per barrel, NYMEX nat gas up 0.33% at $3.99 per therm, COMEX gold is down 0.56% at $1214 per ounce with silver on COMEX down 0.68% at $28.94 per ounce.
The Nikkei fell by 2.17%, the Hang Seng by 0.76%, whilst the CSI 300 closed up 1.32%. European markets have opened positively; STOXX up 0.23%, CAC up 0.32%, DAX up 0.12% UK FTSE up 0.06%. Looking towards the USA open the DJIA future is up 0.13%, SPX up 0.15%, NASDAQ up 0.14%.
Bonds
The U.S. 10-year yield was little changed at 2.79 percent early in London. The price of the 2.75 percent note maturing in November 2023 was 99 21/32. The yield climbed to 2.84 percent on Nov. 21st, the highest since Sept. 18th.
German 10-year bund yields climbed three basis points, or 0.03 percentage point, to 1.76 percent early London time. The 2 percent bond maturing in August 2023 fell 0.275, or 2.75 euros per 1,000-euro face amount, to 102.16. The yield rose to 1.79 percent on Nov. 12th, the highest since Oct. 23rd.
Forex focus
The euro traded at $1.3578 early in London after climbing to $1.3622 on Nov. 29th, the strongest since Oct. 31st. It bought 139.40 yen from 139.30 yesterday. The dollar added 0.2 percent to 102.68 yen. The euro was 0.3 percent from its strongest level in a month before European Central Bank officials gather for a policy meeting on Thursday, when they are forecast to refrain from cutting the benchmark interest rate.
Australian economic growth slowed to a 2.3 percent annual pace in the three months through to September, the Australian statistics bureau revealed this morning, compared with the forecast for 2.6 percent in a survey of analysts. The Aussie slid by 1.1 percent to 90.40 U.S. cents after touching a three-month low of 90.33. It was as weak as NZ$1.1041, the weakest level since October 2008.
The pound traded at $1.6385 early London time after advancing to $1.6443 on Dec. 2nd, the highest since August 2011. The U.K. currency was at 82.83 pence per euro. It reached 82.53 pence on Dec. 2nd, the strongest level since Jan. 11th. The pound was little changed before an industry report that economists said will show U.K. services expanded in November for a 11th consecutive month.
