Daily Market Report 06/02/2014

EUR

Service sector figures for the Eurozone disappointed yesterday. Eurozone as a whole came in at 52.9 below the expected 53.2. In terms of the larger economies Germany fell below expectations at 53.1 with predictions of 53.6.

France and Italy both beat forecasts but there figures were below 50 so still showing a contraction.

Retail sales figures were poor from the Eurozone. Retail sales fell by 1.6% in December compared with November, making this a particularly bad figure as this was over the Christmas period.

Consumers in Europe are still struggling and this adds to concerns that the Eurozone could move further towards deflation.

There was also talk of new debt relief for Greece. The new terms could include extending the maturity on their rescue loans and also cutting the interest rate on some of the previous loans by 50 basis points.

Following all this data, movements on the euro were fairly insignificant as investors sat on the side lines before todays interest rate decision and monetary policy statement by the ECB.

GBP

UK service figures disappointed yesterday. The gauge dropped to 58.3 from 58.8 In December. Expectations were of a rise to 59. As the service sector makes up 75% of the UK economy, the pound continued its weakening trend for this week off the back of this news.

USD


Employment data disappointed from the US today. ADP payroll figures missed forecasts causing the US dollar lose some ground after the week’s gains. But nonetheless the US dollar remains on the front foot this week ahead of expectations that Friday’s non-farm payroll figures are set to show a massive improvement from the previous week

Philadelphia Federal Reserve member Charles Plosser, a notable hawk, said the stimulus which has been supporting the markets should be ended by mid-year. The Fed has already trimmed its programme twice to $65bn a month. He cites the improving labour market as the main reason for doing so.

Today


The Bank of England will be updating markets today with their latest interest rate decision, which is expected to remain at 0.5%; not new news really, so expect minimal movement on the pound off the back of this.

US initial jobless claims are expected to show an improvement from the week prior with the number of people filing for jobless claims set to fall by 13,000; as a result we should continue to see the US dollar continue its two week winning streak.

The main event of today will be the ECB’s interest rate decision and monetary policy statement. With a risk of deflation, a shaky global growth outlook and a rise in overnight interbank interest rate between European banks, there are some in the market suggesting that an interest rate cut could be on the cards very soon. An interest rate cut would typically devalue a currency.

However today may be a bit soon for that to happen but markets will be looking towards ECB President Mario Draghi’s monetary policy speech to get a better gauge what action and when a move on interest rates would be likely to occur.

Key Announcements:


11.00am – EUR – Factory Orders (Dec): Expected to fall to 0.4%.

12.00pm – GBP – BoE Interest Rate Decision: Expected to remain at 0.5%.

12.45pm – EUR – ECB Interest Rate Decision: Expected to remain at 0.25%.

13.30pm- EUR – ECB Monetary Policy Statement.

13.30pm – USD – Initial Jobless Claims: Expected to fall to 335,000