UK services PMI along with US non-manufacturing ISM are the most crucial readings for today
Meetings of RBA, BoC and ECB in conjunction with the monthly NFP release are on the agenda later this week
Further details regarding steel and aluminium tariffs are worth looking at as the trade war thread could gain momentum
Monday rarely abounds in relevant macroeconomic prints but today does as we have services PMI from the UK as well as non-manufacturing ISM from the US economy. The latter could help us project the Friday’s employment change while the former might be critical for the lately beleaguered British pound.
9:30 am BST - UK services PMI: After the two somewhat contradictory PMIs from the UK we’ve already known so far, it’s time for the most important one concerning the service industry. The British pound has performed not well of late mainly due to relative strength of the US dollar, and subsequent remarks with regard to Brexit. The street’s call indicates services PMI to accelerate to 53.3 from 53 seen in January while the composite PMI is anticipated to climb subtly as well.
2:45/3:00 pm BST - US services PMI/ISM: Being several days ahead of the NFP report it’s worth keeping a closer eye on today’s employment component included in the release published by the Institute for Supply Management. Let us recall that the manufacturing employment subindex grew last last month suggesting a healthier increase in overall employment, however, correlation with a non-manufacturing one seems to be higher. US PMI will be released 15 minutes earlier and it’s forecast to come in at 55.9 (final) while ISM should show 59 points.
What to watch for the remainder of the week?
President Trump clearly does not like to be the number two. He showed this last week overshadowing Jerome Powell with his declaration regarding duties on steel and aluminium. We can be sure this declaration will have far reaching consequences. China will weigh its options and the more severe retaliation, the worse it will be for the markets. This new episode of trade wars may overshadow otherwise relevant market events like the ECB decision and the NFP print.
The ECB decision (Thursday, 12:45pm GMT, conference 1:30pm GMT): The ECB post-meeting conference could be a bit easier for Mario Draghi this time around. The minutes from the January meeting showed that president managed to pacify the hawkish camp and their calls for communicating exit from the current ultra-loose policies. Let us recall that the QE has been scheduled to run until the end of September and is widely expected to be phased out throughout the final quarter of the year. However, there’s some disagreement about communicating future interest rate hikes. The data has been softer recently - both PMIs and inflation, so Draghi’s cautious approach should prevail. Affected markets: EURUSD, DE30.
The NFP report in United States (Friday, 1:30pm GMT): The NFP report is the main release in the US this week and the focus will be entirely on wage growth. Markets awaited higher wage growth in the US for months but when it finally arrived investors started to worry about higher inflation and interest rates. It is important to note that in February the “base effect” will be much higher: in January 2017 wages increased 2.4% y/y and in February 2.7% so it will be much harder to register a wage growth close to 3% again. Affected markets: USDJPY, US30.
Reserve Bank of Australia (Tuesday, 3:30am GMT) and Bank of Canada (Wednesday, 3pm GMT) decisions: The RBA is locked in its decision making with the economy not doing nearly enough to warrant interest rate hikes but labour market being good enough to dispel any calls for cuts. The latest capex data was rather weak and if Trump’s duties on steel are introduces, Australia is to be affected so the RBA has no reason to be overly optimistic. In Canada markets see the next hike no later than May even despite the mixed domestic data - retail sales, inflation, employment, all deteriorated. If the BoC takes a step back it would have far reaching consequences as it would fall behind the Fed in the tightening process.
Affected markets: AUDUSD, USDCAD.
The GBPUSD is testing its short-term support at around 1.3760 ahead of the soft indicators from both UK and US economies.