Market Drivers June 5, 2018
UK Data beats
RBA on hold
Nikkei 0.28% Dax 0.37%
Europe and Asia:
AUD RBA on hold 1.5%
GBP UK PMI Services 54.0 vs. 53.0
USD ISM Non- Manufacturing 10:00
Cable was the clear winner of the night rising to a high of 1.3380 in morning London dealing after the UK PMI Services proved to be the third straight report to beat expectations.
UK PMI Services printed at 54.0 vs. 53.0 eyed soundly beating market forecasts. According to Markit, “Adjusted for seasonal influences, the IHS Markit/CIPS UK Services PMI® Business Activity Index rose to 54.0 in May, up from 52.8 in April and comfortably above the 50.0 no-change value. The latest reading was the highest since February and signalled a solid upturn in overall business activity across the service economy. Service providers cited a catch-up from the snow-related disruption seen in the first quarter of 2018, alongside sustained growth of incoming new work. Improved sales volumes were attributed to competitive pricing strategies, greater business investment and successful new product launches in May. However, the latest increase in overall new work received by service sector firms was still one of the weakest seen since the summer of 2016. Reports from survey respondents suggested that subdued consumer spending and Brexit-related concerns among large corporate clients had weighed on new business growth in May.”
Despite the cautious warning from Markit, FX traders liked the news and with cable so grossly oversold, the trifecta of upside surprises in PMI reports for the pair could push sterling through the 1.3400 level as the day proceeds. The news may be good enough for BoE to reconsider a rate hike in July or August and that could send cable back towards 1.4000.
Meanwhile in Australia the news was more subdued with RBA remaining stationary for the 22nd month in a row and offering nothing new as far as forward plans. It made a mildly positive remark about the trough in wage growth, but wages remain well below the RBA normal growth path of 3.5% and in the meantime the central bank remains concerned about the growing trade tensions between US and China, worried that Australia may bear the fallout of any trade war. Aussie lost momentum as a result and the pair stalled at the .7650 level today falling back to .7630 by mid-morning London dealing
In North America today, the focus will be on ISM Non-Manufacturing report expected to rise to 57.5 from 56.8 the month prior. USDJPY was strongly bid in Asian session trade but failed to breach the 110.00 barrier as US yields turned lower for the day. A positive print could spur another attempt by the longs, but so far the positive US data is having decidedly less than impressive impact on USDJPY price action with 110.00 still the key resistance point to overcome.