Daily Market Report 06/08/2013

A strong set of service sector figures from the UK, euro zone and the US all supported each economy’s respectful currencies yesterday.

The day began with UK services growing at its fastest pace in six years in July to 60.2 up from 56.9 in June. The data adds to the better than expected manufacturing and construction data from last week and adds to signs that the recovery in the UK is gathering momentum.

The euro drew support as their respective service sector grew from 48.3 in June to 49.8 in July. Service sector data from Spain, Italy and France also beat expectations rising marginally from June. Services in Germany expanded even further from June, although failed to live up to expectations of 52.5, coming in at 51.3 in July. Retail sales in the euro zone fell in July but not as badly as the analysts were expecting falling by 0.9% instead of 1.2%.

Services in the US rose to 56 in July from 52.2 in June, hitting a five month high. Whilst initially supporting the US dollar, demand for the US dollar continues to be undermined by the worse than expected non-farm payroll figures on Friday where only 162,000 jobs were added in July, the smallest gain in four months.

Overnight the Reserve Bank of Australia lowered interest rates to 2.5%, in line with expectations. However instead of weakening the Australian dollar, the currency rallied as Governor Glenn Stevens refrained from hinting at further rate cuts in the future and will adjust monetary policy to encourage growth and keep inflation contained.

The Indian rupee continued to fall to a record low as a demise in the Indian stock market continues to undermine demand for the rupee as well as a lacklustre corporate performance in the country.

On today’s agenda, data is set to reveal that Italy’s economy shrank by 0.4% in the second quarter, extending its recessionary period into eight quarters. Whilst this may weaken the euro, data from Germany may supersede this, as factory orders are set to improve from -2% to 0.2% in June.  

Industrial and manufacturing production is forecasted to have improved in the UK, which could provide additional support for the pound following data from Halifax which showed that house prices jumped by 4.6% in the three months leading up to July, the biggest annual rise since August 2010.

Key Announcements:

9.30am – GBP – Industrial Production (Jun): Expected to rise by 0.6%.

9.30am – GBP – Manufacturing Production (Jun): Expected to rise to 0.9%.

10.00am – EUR – Italian Gross Domestic Product (Q2): Expected to improve to -0.4%.

11.00am – EUR – German Factory Orders (Jun): Expected to improve to -0.2%.

13.30pm – USD – Trade Balance (Jun): Expected to improve to –US$43.50bn.

15.00pm – GBP – NIESR GDP Estimate (3M) (Jul): Previously at 0.6%.