The final reading for the UK January PMI services-sector index was revised to 48.7 from the flash reading of 48.0. Sterling was unable to make any headway ahead of the New York open with a lack of overall confidence in the UK outlook. Overall risk conditions were also less confident after the Wall Street open which sapped underlying UK confidence, although the FTSE 100 index posted a record high which provided some support. Sterling dipped sharply against the dollar after the US data with an initial slide. Although there was a brief recovery, there were further losses at the New York close with the Euro settling higher.
Sterling remained on the defensive on Monday but edged back higher against the dollar and the Euro. Comments from Bank of England officials will be watched closely in the short term with overall risk conditions and UK equities also again likely to have a significant impact during the day.
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The Euro-Zone PMI services-sector index was revised marginally higher to 50.8 from the flash reading of 50.7 and the Euro posted net gains into Friday’s US open. Looking at the week ahead, the Euro could face selling pressure early on. Economists expect Eurozone retail sales to have slumped in December, with a forecast decline of 2%. This could raise concerns about a potential Eurozone recession, thereby denting EUR exchange rates. A forecast contraction in German industrial production on Tuesday could add to EUR’s woes. Germany is the largest economy in Europe, and manufacturing is a key part of the country’s economy. Signs of declining activity could add to Eurozone recession fears.
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ECB President Lagarde Speech
US non-farm payrolls surged by 517,000 for January compared with expectations of an increase close to 190,000 while the December increases was revised higher to 260,000 from the original reading of 223,000. The increase in manufacturing payrolls was held to 19,000 for the month. There was strong jobs growth of 82,000 in the business services sector with a robust 128,000 increase in the leisure and hospitality sector.
According to the household survey, the unemployment rate edged lower to 3.4% from 3.5% while there was a small increase in the participation rate. The survey recorded a very strong increase in employment of close to 900,000, the second successive jump which suggests that employees are returning to the labour market. Following the much stronger than expected payrolls data, there was a renewed adjustment in Fed Funds futures with fresh uncertainty whether the Federal Reserve would be able to back away from a hawkish policy stance and this triggered a big market adjustment.
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