The euro and the pound were jockeying for the top spot during the course of the session. But in the end, the euro managed to gain the upper hand against the pound to emerge as the best-performing currency of the morning London session.
Meanwhile, the Aussie fared rather poorly despite the risk-on vibes, very likely because of the fall in gold prices.
- Nationwide U.K. HPI m/m: 0.6% vs. 0.1% expected, 0.1% previous
- Spanish services PMI: 54.6 vs. 54.7 expected, 54.4 previous
- Italian services PMI: 55.4 vs. 54.7 expected, same as previous
- French final services PMI: 59.1 vs. no change from 59.4 expected
- German final services PMI: unchanged at 55.8 as expected
- Euro Zone final services PMI: 56.6 vs. no change from 56.5 expected
- U.K. services PMI: 54.2 vs. 54.0 expected, 53.8 previous
- U.K. net lending to individuals: £4.9B as expected vs. £4.7B previous
- Mortgage approvals in the U.K.: 65K vs. 64K expected, 65K previous
- U.S. ADP report on tap
U.K. services PMI
The U.K.’s services PMI report was released earlier today and it showed that the U.K.’s headline services PMI reading for the December period improved from 53.8 to an eight-month high of 54.2, which is a bit better compared to the consensus that it would come in at 54.0.
Pretty good, yeah? Well, commentary from Markit removes some of the shine from the better-than-expected reading.
Sure, new business growth continues to increase at a solid clip, “but the latest upturn was the slowest recorded since August 2016.”
Moreover, “survey respondents suggested that subdued business investment and cost consciousness among clients were factors that had weighed on sales growth in December.”
And since new work grew at a weak pace, “the rate of job creation slipped to a nine-month low.” Ouch!
There’s some good news (for rate hike junkies), however, since Markit noted that “Input price inflation reached its highest level since last September.”
More importantly companies are passing on their higher input costs because “average prices charged increased at a robust pace across the service sector, although the rate of inflation eased from November’s peak.”
Moreover, business sentiment “picked up to a seven-month high in December, with around 43% of the survey panel expecting a rise in business activity over the course of 2018.”
Euro Zone’s final services PMI
The Euro Zone’s final service PMI report is usually not a market-mover. But as mentioned in my commentary on the euro below, today’s release seems to be an exception.
Anyhow, the final services PMI reading for the Euro Zone as a whole was only revised slightly higher from 56.5 to 56.6.
Even so, commentary from Markit noted that this is “the steepest increase in service sector activity for over-six-and-a-half years.”
Moreover, if the Euro Zone’s strong manufacturing PMI numbers are included to get the composite PMI, then the Euro Zone composite PMI comes in at 58.1 reading, which is the “highest reading since February 2011.”
Chris Williamson, Chief Business Economist at IHS Markit, also had this rather upbeat thing to say:
“The survey data are consistent with the quarterly rate of GDP growth accelerating to an impressive 0.8% in Q4, with no sign of momentum being lost as we move into 2018.”
Another risk-on day in Europe
Another round of risk-taking sent to the major European equity indices higher during today’s morning London session.
And aside from risk sentiment spillover from the earlier Asian session, market analysts also attributed today’s bout of risk-taking to the Euro Zone’s strong services PMI numbers.
- The pan-European FTSEurofirst 300 was up by 0.55% to 1,541.95
- Germany’s DAX was up by 0.97% to 13,104.50
- The blue-chip Euro Stoxx 50 was up by 1.06% to 3,549.50
U.S. equity futures were also in the green, which implies that risk-taking may carry over into the upcoming U.S. session.
- S&P 500 futures were up by 0.16% to 2,715.25
- Nasdaq futures were up by 0.25% to 6,601.00
Major Market Mover(s):
The euro was the one currency to rule them all during the morning London session.
And linking price action to the potential catalysts, it looks like the Euro Zone’s services PMI reports were the cause for the euro’s broad-based rise. Even other market analysts say as much.
This is rather odd, however, since the services PMI reports earlier were the revised rather than the flash readings. Moreover, the Euro Zone’s PMI reports are not usually considered market-moving, but they apparently were today.
EUR/USD was up by 42 pips (+0.35%) to 1.2070, EUR/JPY was up by 52 pips (+0.38%) to 135.94, EUR/AUD was up by 80 pips (+0.52%) to 1.5397
The pound had a good run and was the second-strongest currency of the morning London session.
Market analysts generally pointed to the U.K.’s services PMI beat as the reason for the pound’s rise. However, the pound actually started its broad-based climb before the services PMI report was released.
Whether this was due to a leak or something else is not clear. What’s clear, however, is that the pound’s price action became more mixed after the services PMI report was released.
Even so, the pound was able to preserve its gains. Well, except against the euro that is. Although the pound also shed some of its gains against the Swissy.
GBP/USD was up by 29 pips (+0.22%) to 1.3547, GBP/NZD was up by 35 pips (+0.20%) to 1.9013, GBP/AUD was up by 65 pips (+0.38%) to 1.7280
Despite the risk-on vibes, the higher-yielding Aussie was the worst-performing currency of the morning London session. And the most likely reason for the Aussie’s weakness is the slide in gold prices during the session, which market analysts attributed to profit-taking.
AUD/USD was down by 13 pips (-0.17%) to 0.7839, AUD/JPY was down by 12 pips (-0.14%) to 88.28, AUD/CHF was down by 34 pips (-0.45%) to 0.7640
Watch Out For:
- 1:15 pm GMT: ADP U.S. non-farm employment change (190K expected, 190K previous)
- 1:30 pm GMT: U.S. initial jobless claims (241K expected, 245K previous)
- 1:30 pm GMT: Canada’s RMPI (4.0% expected, 3.8% previous) and IPPI (1.0% expected, same as previous)
- 2:45 pm GMT: Markit’s final services PMI (no change from 52.4 expected)
- 4:00 pm GMT: U.S. crude oil inventories (-5.2M expected, -4.6M previous)