Market Drivers for October 4, 2013
UK PMI services near highs sending cable back above 1.6200
EZ PMI Services a bit better on Italian improvement
Nikkei -0.09% Europe .05%
Oil $103/bbl
Gold $1312/oz.

Europe and Asia:
AUD PMI Services 47.1 vs. 39.0
CNY Services PMI 55.4 vs. 53.9
GBP UK PMI Services PMI 60.3 vs. 60.4
EZ Final Services PMI 52.2 vs. 52.1

North America:
USD Weekly jobless 8:30
USD ISM Services 10:00

High beta currencies remained mildly bid as the impasse in Washington DC continued and the economic data across the G10 continued to show improvement lending some support to Aussie, cable and euro. In Australia the AIG Services index rose sharply to 47.1 from 39.0, it best reading since April. Although the index still remains below the 50 boom/bust line the strong surge in September suggests that business activity Down Under may be stabilizing.

Aussie rose towards 9400 on the news and was also boosted by Chinese Services PMI data which printed at 55.4 versus 53.9 the month prior. This was also the best reading since April of this year showing that the Chinese services sector is starting to expand at a robust pace. Indeed China raised its GDP estimate to 7.7% from 7.4% initially eyed.

In Europe the news was positive as well as EZ retail sales increased by 0.7% versus 0.2% forecast and EZ final services PMI printed at 52.2 versus 52.1 projected – comfortably above the expansion line. It addition Spain’s debt services costs continued to decline as country auctioned off its 10 year bonds at 4.269% versus 4.503% the period prior.

With Italy having now worked out its political problems and with ECB seemingly unconcerned about the strength of the exchange rate, the EUR/USD has now assumed the “safe harbor” status as the political stalemate in the US becomes increasingly more rancorous. The EUR/USD continued to trade above the 1.3600 level and may test 1.3650 as the day proceeds.

In UK the PMI services report printed at 60.3 versus 60.0 forecast. This was just a bit below last month’s reading of 60.5. Nevertheless this was the best quarterly PMI results since Q2 of 1997 as employment growth continued and some respondents even showed wage increases. Although in aggregate UK PMI data was slightly off last month’s highs it remains well above the expansionary territory and suggests that UK GDP in Q3 should show significant improvement. That in turn should keep BoE on the sidelines and continue to provide support for the pound as it hovers near recent highs above the 1.6200 level.

The rally in high betas could continue into the US session today especially if the markets see no progress on the budget negotiations and US data misses its mark. With NFP results now postponed due to government shutdown, today ISM Services report will the the last major economic data point for the market to consider this week. Consensus view is for a slight decrease to 57.2 from 58.6 the month prior. If the data prints in line it may not have much impact on FX trade today. However if the ISM reports prints at 56 or lower it could quickly send the dollar lower with cable taking out the 1.6250 level and euro climbing above 1.3650 as traders begin to worry that the wrangling in Washington is starting to have a negative impact on the broader US economy.

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