06/11/2018 - UK Services Tumbles To Seven Month Low

GBP

Business activity in Britain’s dominant services sector slowed to a seven-month low last month and firms’ expectations for the coming year are the gloomiest since just after the 2016 Brexit vote, a major survey showed on Monday.

Britain’s economy has slowed since the June 2016 referendum, and Monday’s data added to signs that a patch of solid consumer-led growth over the summer months is now fading as firms focus on risks from Brexit and warning signs about the global economy.

Businesses’ expectations for stronger activity over the next 12 months were the weakest since July 2016, when they briefly hit a post-financial crisis low following the vote to leave the European Union.

Businesses said new orders were coming in at the slowest rate since July 2016, and their costs were rising at the fastest rate since June due to higher fuel bills and rising wages. However, they expected orders to pick up if the Brexit talks were concluded successfully. The services PMI in Britain does not include the public sector or retailers, who enjoyed strong consumer spending over the summer but face longer-term challenges from online sales.

USD

The dollar paused after three consecutive weeks of gains as investors took profits before U.S. midterm elections this week that may fuel a bout of volatility for global markets, with the British pound leading gains on Brexit deal breakthrough hopes.

Nevertheless a dollar selloff in the second half of last week, hedge funds added to their dollar holdings, taking net long positions to the biggest levels since Dec. 2016 as latest data encouraged more bullish bets.

Market analysts warn that an unexpected outcome at the midterm elections could trigger a massive unwind of long dollar positions and undermine the greenback which has rallied more than 7 percent from April lows against its rivals.

Tuesday’s U.S. congressional election is widely expected to help the Democratic Party, who have a strong chance of winning control of the U.S. House of Representatives, with Republicans likely to keep the Senate.

EUR

Finance ministers from the euro zone countries discuss what to do about Italy today after rejecting Rome’s draft 2019 budget, the first time that a stand-off over a member state’s deficit has reached such a pass. Italian Deputy Minister Luigi Di Maio is out with an FT interview arguing that Rome’s expansionary budget should become the “recipe” for fiscal policy elsewhere around the bloc; critics counter that the growth projections contained in the budget draft look way too optimistic.

Ministers will also turn their attention to reforms of the single currency zone that have lost motivation amid the troubled politics of the region - and which will not be helped by the open leadership questions in Berlin after Angela Merkel announced her plans for retirement. Speculation continued over the weekend about just how near to - or far from - a Brexit deal Britain and the EU are, with sterling buoyed by hopes that it is only a few weeks away. The bigger question remains how Theresa May presents any compromise with Brussels to suspicious Brexiters in her ruling party.

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