Market Drivers August 3, 2018
Europe and Asia
AUD: AU Retail Sales 0.4% vs. 0.3%
EUR: EZ PMI Cpmposite 54.3 vs. 54.3
GBP: UK PMI Services 53.5 vs. 54.7
North America
USD: NFP 8:30
USD: ISM Non-Manufacturing 10:00
The dollar was well bid ahead of the US NFP release later today, aided by disappointing economic data across the pond and expectations of strong US labor results.
In Europe, the final reading of PMI results for July showed further deterioration in data with German Composite reading coming at 55.0 versus 55.2. Overall the EZ PMI Composite printed at 54.3 as expected but was well off the highs of 58,8 set earlier this year. EUR/USD slid to 1.1575 in morning Frankfurt trade and could test the 1.1500 support if US data surprises to the upside.
In UK the news was even bleaker as cable was hit by comments from Governor Carney who noted in an interview that risks of a hard Brexit were “uncomfortably” high and then fell further when UK PMI services showed a weaker than expected reading of 53.5 versus 54.7.
This was the lowest PMI read in 3 months and shows clear deceleration of activity that could be problematic for Q3 growth, According to Markit PMI, “The UK services sector experienced a few bumps in the road in July as consumer and client confidence remained persistently half-hearted, and pessimism around the performance of the UK economy along with Brexit concerns lingered. Levels of new orders and jobs growth were affected along with business optimism which remained below the long-term average even with July’s three-month improvement.“ Some of the slowdown may have also been attributed to World Cup, but it’s clear that Brexit concerns are beginning to weigh on UK’s most important sector.
Cable dropped through 1.3000 and now stands in danger of taking out the key 1.2950 support as shorts will press the downside especially if US data beats.
The NFPs today are expected to come in broadly around the 200,000 mark, but as always the focus will be on wages. Anecdotal evidence abounds that full employment is starting to put upward pressure on wages but the key is whether those forces will make their way down to the non-supervisory level. Markets expect a gain of 0.3% for a 2.7% year on year rise, but if the wage data prints at 2.8% or higher it can fuel a big rally in the greenback as market expectations of 4 rate hikes this year will be ratcheted. USD/JPY which has been essentially marking time for the past two days around the 111.50 level, could explode through 112.50 as 10 year US yields pop and hold the 3% level.
On the other hand, a more muted number could provide very little price action and may even spur a short covering rally into the close of the day as much of the anti-dollar flow has already taken place.