A weaker pound helped the FTSE bounce higher even as its European peers dropped into the red before recovering again. Monday’s trade deal optimism faded under a lack of concrete evidence and investors are subdued following China lowering its GDP forecast. As a result, European markets pared earlier gains and Wall Street opened in the red.
Pound drops no progress Brexit & UK Service sector data
Data showed that the UK service sector managed to avoid contraction in February. The service sector pmi jumped to 51.3 in February after dropping to 50.1 in January and ahead of expectation. However, delving deeper into the numbers, there was clearly little to celebrate. The details of the report make it clear that the UK economy is grinding to a halt amid Brexit uncertainty, as consumers and businesses delay taking decisions ahead of 29th March.
The most unsettling point was the sharp decline in employment in the sector, as hiring fell by the most in 7 years. Firms putting off hiring decisions is not that surprising however, these figures are a world apart from the solid labour reports that we have been seeing. This doesn’t mean that the UK labour market is about fall apart but hiring over the next few weeks is expected to be slow.
The pound flinched lower on the release as concerns stemming from the details of the service sector report seeped in. However, it was the gloomy Brexit headlines that were responsible for sending sterling sub $1.31 for the first time in a week. Expectations are low for an imminent break through as UK Attorney General Geoffrey Cox goes to Brussels to try to secure concessions. This is reflected in the falling price of the pound. We expect the pound to remain under pressure across the week as investors start positioning ahead of next week’s Brexit voting bonanza.
Euro struggles ahead of ECB meeting
The dollar remains in demand. Not even better than expected eurozone retail sales data this morning could lift the euro versus the buck. Eurozone retail sales increased 1.3% in January, a marked improvement from December’s -1.4% decline. Other data points including Italian service sector pmi were also better than forecast.
However, the slew of stronger eurozone data is unlikely to change the ECB’s tone on Thursday, which is expected to err on the side of caution.
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