Daily Market Report - 04/02/2016

GBP

Britain's services sector was unscathed by growing worries about the global economy last month but firms are concerned about risks ahead including a referendum on European Union membership. The Markit/CIPS services purchasing managers' index (PMI) edged up to 55.6 in January, a level it has surpassed only once since July last year. Economists in a Reuters poll had expected the index to slow to 55.3 after dipping slightly to 55.5 in December.
 
Markit said the UK’s service sector is expected to expand by 0.6 percent in the first quarter of 2016, picking up a bit of speed from estimated growth of 0.5 percent in the last three months of last year. On the back of this data we saw GBP strength against both the EUR and USD. 

USD

Markit’s services PMI for January came in at 53.2 compared to a projection of 53. The composite PMI  fell from 54 in December to 53.2, the lowest level since October 2013. The ISM services report for the US is also showing a slowdown in growth last month. The index came in well below expectations at 53.5 in January, compared to 55.8 in December and forecasts of a reading of 55.1.

To compound USD weakness New York Fed president William Dudley said yesterday that the weakening of the economy means conditions have tightened since the Fed raised rates. If current concerns are still in place at the time of its March meeting the Fed would have to take that into consideration to decide if it will raise rates again. He also cited that any further strengthening of the USD could have serious consequences for the health of the US economy.
 
On a slightly more positive note for the US economy the ADP employment change beat forecasts as US employment increased by 205,000 in January compared to forecasts of a 195,000 rise. This could imply we see a positive figure for the non-farm payrolls on Friday.

Key Announcements

12:00 – GBP – BoE Interest Rate decision expected to remain unchanged at 0.5%

12:00 – GBP – Monetary Policy Summary

12:00 – GBP – Bank of England Inflation Report

12:00 – GBP – Bank of England Minutes

12:45 – GBP - BoE’s Governor Carney Speech

13:30 – USD – Initial Jobless Claims expected to rise to 280k from 278k