Positive Data To Continue In Shadow Of Syria Crisis

Currency markets yesterday continued to position themselves for events later in the week, with Thursday’s Bank of England and European Central Bank meetings and Friday’s payrolls announcements closely eyed. All the while, the prospect of some form of military action by the United States against the Syrian regime kept risky assets from getting too exuberant in the face of improving economic data.

The nervousness the market feels around the situation in Syria was highlighted following a newswire report from Russia that missile tracking software had picked up two ballistic “objects” heading towards the Eastern Mediterranean. Initially, the market believed this to be a strike against Syria with USD and other havens gaining ground along with oil and gold. It later emerged to be a joint US-Israel exercise for the Israeli missile defence shield with assets recovering over the course of a few hours.

Discussions last night in Congress over the possibility of a strike have made sure that recent gains fuelled by encouraging economic prospects around the world have not been mirrored through risky assets.

Improving data has been a characteristic of the UK for the past couple of months, and continued as such with yesterday’s construction PMI, confirming the fastest growth for 6 years. The construction sector has been the one that analysts had worried may have the most trouble recovering through 2013. Whereas manufacturing could rely on a weak pound and an expansion in global aggregate demand, and UK consumers have propelled the services sector onwards, no such catalyst was available for construction.

Over the summer, however, a combination of residential and civil engineering projects have put the sector on a positive path, with increased confidence in the future allowing firms to invest in capital and, more importantly, new employees.

Today’s services data at 09.30 will hopefully give us another hat-trick of outperformance – the market is hoping for a stonking reading of 59.7, slightly lower than last month’s 7yr high of 60.2.

The second reading of Q2 GDP for the Eurozone at 10.00 BST should confirm growth at 0.3%, while August services data before may just deflate imminent expectations about recovery, given the issues we’ve seen in retail sales and consumer confidence measures from the area of late.

Tomorrow’s ADP number is the first jobs related number of the week from the US, but yesterday’s US manufacturing ISM further propelled tapering expectations forward, after it beat estimates handsomely.

In fact, tomorrow’s event risk is quite something, with both ECB and BOE meetings, ADP, initial jobless claims and services data from the US. Unless those data pieces and Friday’s payrolls announcements top expectations handsomely, we are still happy to believe that we’ll not see any form of stimulus reduction from monetary authorities in the US this month.

Tonight’s Beige Book survey of regional Feds will likely emphasise the uneven nature of the recovery in the United States and therefore the lack of near-term tapering.