The Markit Services PMI data published on Monday showed that the economic activity in the service sector continued to expand at a solid pace. The Index for the U.S slightly slipped to 54.6 in September from 55.0 in August, but it is still above the 50-mark that separates growth from contraction. The PMI report also revealed that the Composite PMI nudged down to 54.3 in September from 54.6 in August. Both figures illustrate that Covid-19 worries and social distancing continued to impact many businesses, especially in consumer-facing sectors, where demand for services dropped once again. However, given that Trump is back in the White House and positive services PMI data, which led a more positive tone to the global market, the USD printed new losses (0.41%) in the last trading session. Today, traders will keep a close eye on the trade balance numbers where a large trade deficit could keep gains capped for the USD. Also, on the radar, the Job Openings and Labor Turnover Survey is expected to be released later and another phone call between Treasury Secretary Mnuchin and House Speaker Pelosi is the event to keep an eye on.
The euro managed to gain further ground (0.57%) against the USD on Monday after the Dollar Index, which measures the performance of the USD against a basket of major currencies, slipped as much as 0.44%. On the fundamental side, although the HIS Markit Eurozone PMI Composite Output Index slipped to a three-month low of 50.4, down from August’s 51.9, the final reading was firmer than the earlier flash estimate (50.1). According to the report, there were some notable divergences in activity at the country level during September: Germany recorded a marked rate of growth; Italy was the only other nation to record expansion; France and Ireland slipped back into contraction; Spain recorded a sharp deterioration in services activity. Today, the EUR could be supported by data published earlier this morning, which showed that new factory orders in Germany rose by 4.5% in August compared to July, beating economists’ estimates for a 2.8% increase. Export orders delivered a particular boost, with investment goods from the eurozone up more than 20%.
Later yesterday, the UK IHS Markit reported that Services PMI shrank from 58.8 in August to 56.1 in September, however, the figure was better than previously expected (55.1) and the report also indicated that business managed to find a way to mitigate the negative impact of the pandemic. Against this backdrop and taking advantage of a weaker USD, the GBP increased its gains (0.36%) against the greenback on Monday. Today markets will continue to focus on economic data, this morning’s UK construction PMI figures, and this afternoon’s Redbook retail sales and U.S job openings report. Any surprises from this data could catalyze negative impacts on the GBP.
The Japanese yen on Monday closed 0.19% lower against the U.S dollar after Bank of Japan (BoJ) Governor Haruhiko Kuroda warned that economic activity is in severe condition and uncertainties surrounding the outlook remain extremely high. However, Mr. Kuroda reiterated that the BoJ will not hesitate to take additional easing steps if needed to combat the hit to the economy from the pandemic. Furthermore, Kuroda also said Japan’s financial system was “quite safe and stable”. It is a quiet week for the economic data front, with investors focusing on hopes for fresh U.S economic stimulus.
The CAD recovered some lost ground (0.21%) on Monday with the oil market providing a boost. Also, the CAD managed to print positive gains after the greenback fell 0.44% against a broad basket of major currencies as traders increased purchases of riskier currencies amid signs that U.S. President Donald Trump’s health condition was improving. Today, investors will be closely watching the international merchandise trade numbers for August. Canada’s imports and exports both posted gains in July, but still remained below their pre-pandemic levels.
The MXN ended Monday with new gains against the USD. The Mexican peso rose 1.05% after Mexico’s government presented an almost MXN 297bn (USD 13.8bn) infrastructure investment plan late yesterday. The package, mostly funded by private sectors, is the first clear sign of corporate bosses' readiness to invest under Lopez Obrador since the Covid-19 pandemic this spring plunged Mexico into its biggest slump since the Great Depression. The MXN also found support after the consumer confidence indicator increased 1.1 pts to 35.9 pts in September, its second-largest increase since the reopening started. Market participants expect that confidence will keep recovering, although probably at a more moderate pace. Later today, the market’s attention will turn to one of the most important industry reports, the Vehicle Production Report, which will indicate how fast the country is recovering from the lockdown.
In China, the markets are still shut for its Golden Week holidays until Thursday.
The BRL surged on Monday, recovering substantially from last week's losses. The Brazilian real edged up 1.78% after the IHS Markit Services PMI jumped from 49.5 in August to 50.4 in September, highlighting that the services sector expanded last month for the first time in seven months. PMI data also showed another increase in new work and sustained business optimism among survey participants. In the stock market, Petrobras, which is Brazil’s state-controlled oil company, was among the biggest gains (+5.31%) on Brazil's Bovespa index after oil prices rebounded on Monday by more than 4%, with Brent Crude back above $40 a barrel. Market participants will be focused on Wednesday’s government agenda, where the federal government will reveal how it plans to fund its new social welfare program “Renda Cidadã”.