UK Services data poor as BREXIT looms...
Week Commencing Monday 6th February 2017
UK: Services slow as Brexit trigger looms.
The UK Service Sector rose at its slowest rate in four month, however it was still considerably higher than the 50.0 level, which signals contraction.
January’s Services PMI survey pointed to an easing in the services sector to 54.5 from Decembers 56.2. This indicates the slowest rate of growth since October.
Diving into the report, the survey reported robust levels of optimism as the UK government prepares to trigger Brexit talks by the end of March. The survey did however draw attention to severe inflationary pressure, pushing price rises to their fastest rate since March 2011.
Earlier in the week, the Bank of England revised up its growth forecast for the UK economy to 2 percent, well above the 1.4 percent forecast they made in November. This PMI moderation follows other surveys that have pointed to a fall in consumer borrowing and confidence.
The PMI survey for manufacturing on the other hand, published slightly earlier than the Services figure, reported an acceleration in growth. Brexit Britain may well be turning on its head!
EZ: Inflation pushes higher putting ECB Bond Purchase Program at risk.
Eurozone inflation surged to a near four year high in January, a jump which is likely to intensify the debate surrounding the European Central Bank’s bond buying program.
Annual CPI rose to 1.8 percent in January amid a jump in food and energy costs, up from 1.1 percent in December. This was the highest posted rate since February 2013 and well above the market expectations of 1.5 percent.
Within the Eurozone, Spanish inflation figures jumped to 3 percent in January, while German inflation stood at 1.9 percent. Separately, the European statistics agency said Eurozone gross domestic product rose 0.5 percent quarter-on-quarter in the last three months of 2016, as expected, for a 1.8 percent year-on-year rise. In the whole of 2016, euro zone GDP rose 1.7 percent, down from a five-year high of 2.0 percent in 2015. This puts European GDP at a par, if not exceeding expected US GDP this year.
EUR/USD continues to trade with a neutral bias and is bounded within a tight range below 1.0828. In the absence of any major economic releases, we expect little deviation from this range, so expect the market to bottom out at 1.06 while 1.08 remains our high end estimate.
GBP/USD pushed south as Sterling took a post Bank of England hit last week. We expect to see a continuation of the downside sentiment this week, especially as Brexit and geopolitics are the only points of focus on a light UK economic calendar. We expect 1.22 to be the low end of the range this week, while 1.26 remains somewhat unbreakable.
GBP/EUR followed cable last week with declines back towards 1.15. We expect to see the pair continue to trade within its range, with a similar downside bias as seen in Cable. Mario Draghi remains key for Euro performance this week, and any hint of policy shifts will likely push volatility through the roof on the single currency.
Economic Calander for the Week
We have a quiet week ahead for the UK, with Manufacturing Production the only economic release of note. We expect the figure to decline month on month to 0.5 percent for December, versus Novembers 1.3 percent print. Thursday sees Bank of England Mark Carney speak with any reference to growth or inflation forecasts likely to shift Sterling. Brexit remains key for Sterling and the UK, therefore any statements or releases on either side are likely to dominate headlines.
We have a quiet week for the US, with Crude Oil Inventories and JOLTs Job Openings the only release of note. We expect Job Openings in December to remain roughly in line with previous releases at 5.553 million versus 5.522 previously. Crude Oil should also come in roughly in line with last months 6.466 million print. Most eyes remain on President Trump and his visa ban, so expect geopolitics to continue to dominate.
We only have Mario Draghi on Monday to look forward too this week, who is expected to speak on Monday afternoon. His comments on Eurozone inflation will likely be the main market focus, with any potential shift on his bond buying program the chief concern of markets.