Market Drivers for August 5, 2013
ISM Services beats on headline, but employment declines
NZD falls on milk ban, Aussie recovers from weak Retail Sales number
UK PMI Services best since 2006
Nikkei -1.44% Europe 0.14%
Oil $107/bbl
Gold $1315/oz.

Europe and Asia:
AUD Retail Sales 0.0% vs. 0.4%
AUD AiG Performance of Services Index 39.4 vs. 41.5
AUD TD Securities Inflation 0.5% vs. 0.0%
EUR Euro-Zone PMI Services 49.8 vs. 49.6
EUR Euro-Zone Sentix Investor Confidence
GBP PMI Services 60.2 vs. 57.4

North America:
USD ISM Non-Manufacturing Composite 56.0 vs. 51.7

The ISM Services report printed better than expected at 56.0 versus 53.2 eyed hitting its highest level since February and providing the dollar with a small boost in mid morning North American trade. The subcomponents of the report were generally better with with new orders rising to 57 business activity rising to 60.4 from 51.7 and export orders increasing by 2 points to 49.5.

The one sour note in the report was the weaker employment data which dropped back to 53.2 from 54.7 the month prior. The report confirmed that US employment growth may starting to stall in Q3 of the year. However, with the ISM Services released a day after the NFPs, much of the impact of its news was diminished as markets had already absorbed the less than stellar labor data.

The dollar therefore did not see much continuation from the ISM release as it remained near the 98.50 level against the yen and 1.3250 against the euro. Currency markets were generally quiet taking their cue from the placid equity bourses which were off less than 25 basis points in morning trade.

Earlier, the UK PMI Services printed at is best level since 2006, lifting GBP/USD through the 1.5350 level in mid morning London trade today. In yet another example of rapidly improving UK economy the PMI services report rose to 60.2 from 57.4 eyed indicating that growth in Q3 should be considerably better than the start of the year.

Not long ago investors bemoaned the fact that UK economy was about to dip into a triple dip recession as GDP was about to contract for the third time since the financial crisis of 2008. However, economic condition in UK have clearly improved substantially over the past several months with the July PMI data beating forecast in all sectors. Indeed the combined PMI reading now stands at the highest level since records began in 1998 suggesting that the expansion is picking up upside momentum.

Cable rose to clear the the 1.5350 level and now stands ready to attack the key 1.5400 figure which has been a major point of resistance over the past several weeks. Despite robust economic data, sterling has weakened over the past few weeks as investors worried that the new BOE chief Mark Carney would take monetary policy into a more accomodative direction. However, so far Mr. Carney has shown little inclination to increase QE or lower rates and today’s very strong results demonstrate unequivocally that the UK economy is rebounding strongly without any additional stimulus.

Therefore, as suspicions regarding Mr, Carney’s dovishness begin to recede, the pound may find renewed strength and could trade towards the yearly highs of 1.5700 over the next several weeks.

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