Daily Brief

Services down the pan

Hopes and fears

A different day; a different mood. Whilst investors were wary about some sectors – notably airlines - on Monday they were somewhere between neutral and positive about equities and risk in general. Among the currencies, Friday’s losers became Monday’s winners; the antipodean dollars and Northern Scandinavian crowns. Sterling had another mediocre day.

Sterling did nothing wrong. Rather, it did nothing at all. The purchasing managers’ index for the construction sector, which usually appears on the day between manufacturing and services, will not be out until tomorrow. The pound’s recent sluggishness is related to concern that the Bank of England will step up its asset purchase programme at Thursday’s Monetary Policy Committee meeting. It was just about flat against the US dollar and Japanese yen, and took half a cent off the euro.

Investors tried to tune out the war of words between the White House and Beijing. Trump and his Secretary of State Michael Pompeo claim to have “enormous evidence” that the Coronavirus originated in a Chinese laboratory but have yet to reveal it. The US intelligence community several days ago debunked the idea that the virus is manmade, yet Trump and Pompeo continue to attempt to deflect criticism of the administration’s handling of the outbreak. Although the spat could escalate into something more serious, investors are content, for the moment that it will not.


Leftover PMIs

Europe yesterday tidied up the remaining manufacturing sector PMIs. There were some positive surprises but none of the readings were above the breakeven line at 50 or, indeed, anywhere near it. The second strongest was for Swiss manufacturing at 40.7, which even there represented “new lows”.

The other European readings ranged from 41.3 in the Netherlands (a 131-month low) to 29.5 in Greece (a series low). Germany clocked 34.5, France 31.5 and Italy 31.1. Germany and Italy beat forecast. The Sentix index of Euroland investor confidence improved by a point in May but was still softer than expected at -41.8. US factory orders “suffered a record decline in March and could sink further”.

Overnight the Reserve Bank of Australia announced that the target for the Cash Rate and for three-year government bond yields will remain at 0.25%. The decision did not come as a surprise and did not disturb the Aussie, which is a cent and a half firmer on the day and the top performer among the majors.


Services PMIs

Today the PMI-fest moves on to the services sector. Europe will miss the party once again, as a result of Friday’s holiday. The services readings will make the manufacturing figures look good.

Markit’s readings for Australia put the services PMI at 19.5 and the composite index at 21.7. The UK figure this morning is pencilled in at 12.2. Even at that dismal level it would probably not be the softest reading from Europe. Tomorrow will tell. The Markit and ISM services PMIs for the United States this afternoon are forecast to be 27 and 32 respectively.

Also on today’s agenda are Swedish output and manufacturing orders, the US and Canadian trade figures and the European Commission’s latest economic growth forecasts. Tonight come the NZ employment numbers and Australian retail sales.

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