UK Services PMI due at 9.30 was, as you’d expect the key to sterling direction this morning. A print of 53.6 was expected, slightly lower than the previous 53.7 and yet it still missed. The weakest growth in 3 years so there is no nice way to put it; the British economy is slowing. You can blame ‘Brexit’ to some extent, but the writing was already on the wall some time ago. Manufacturing, long since in the doldrums and construction output have already failed to meet expectations this month and given that services accounts perhaps for some 2/3 of the economy, we can likely expect to see GDP growth peel back even more.
GBP/USD took a step to the downside in the aftermath of the PMI release but has retaken the $1.45 level again. Against the euro, it’s a different story as the single currency is credibly fighting to regain the 0.79 level.
Yesterday’s ADP report missed estimates before the unemployment report due on Friday. The US dollar is amongst the weakest of the G10 currencies but maintain strength against emerging market currencies. Previous performance in May would suggest additional upside for the dollar- it has strengthened nine out of the past eleven months of May. However, weak economic fundamentals and scepticism among the Fed hawks could compromise the dollar’s strength this May.
US Unemployment claims are out later this afternoon (Exp. 261k, prev. 257K) will be quickly followed up by a speech from FOMC member Bullard. Known for his hawkish comments with a side of indecision, he recently said that all Fed meetings are ‘live meetings’. As a voting member, we can expect to see some dollar movement on his comments. Whether he’ll have a consistent message for markets remains to be seen.
The Aussie strengthened against all of its G10 peers and is presently the best G10 performer against the US dollar as recent trade data showed that country’s exports surged by 4% in March. Retail sales also improved at a better-than-expected pace (0.4%m/m vs 0.3% expected). The AUD/USD recovered the 0.75 mark in Sydney and technicals would suggest a bullish structure above 0.7450 (major 38.2% retrace on Jan – Apr surge).
A number of companies trade ex-div today: BP (LON:BP)(-1.05%), Kingfisher (LON:KGF)(-1.71%) and London Stock Exchange Group PLC (LON:LSE) (-1.55%). But the FTSE is higher on the day – albeit by a mere 0.5%.
WM Morrison Supermarkets PLC (LON:MRW) +4%: reported its second consecutive quarter of sales growth. Still continues to struggle with food price deflation that has marred profit margins across the industry for the last two years.
BT +3.11% : reported a 15% rise in annual profits to £3.03bn, helped by stronger demand for broadband and TV services. Sales rose 6% to almost £19bn, which includes £1.06bn contribution from mobile operator EE. The number of customers for its TV service jumped by 28% to 1.5 million.
We call the Dow Jones higher by 100 points. The index is presently 1.3% higher year to date.