The slight upward revision to the manufacturing PMI yesterday was followed by stronger than expected final services and composite PMIs today. The services PMI was revised to 52.5 from 52.2, which still suggests a slight deceleration in services sector growth at the start of the year, but together with the rebound in manufacturing left the composite at 51.3, up from 50.9 in the preliminary release for January, which had matched the December reading. The composite is in fact at the highest level since August 2019 and with new orders growth accelerating, the robust start to 2020 backs the ECB’s cautiously optimistic take on the outlook, even if there are still plenty of downside risks, including the fallout from the virus outbreak, but also the clearly difficult negotiations with the UK on the future trading relationship with the EU. For now, though, nothing to convince the central bank that immediate stimulus measures are necessary.
The UK services PMI data was also revised higher by a whole point from 52.9 last time to 53.9. It is the highest reading for the Services data since September 2018 with the post-election feel good factor feeding through. New business expansion was the most robust since June 2018. To quote Markit, the survey provider – “January’s PMI surveys give a clear signal that the UK economy has picked up since the general election, as a diminishing headwind from political uncertainty translated into rising business and consumer spending. We maintain our nowcast of UK GDP rising by approximately 0.2% in the first quarter of 2020, which represents an improvement on the sluggish conditions seen at the end of last year.”
EURUSD fell to 1.1022, compounded by a miss in EU Retail sales for December and Cable rallied over the 200-hour moving average to R1 at 1.3069 following the Service PMI data.
Next up a speech from ECB President Ms Lagarde at the “Grand Prix de l’économie des Echos pour l’année 2019” in Paris, France (12:15 GMT). Unlikely to include any significant news regarding the Strategy Review, possibly more on that tomorrow when she testifies in front of the EU Committee on Economic and Monetary Affairs in Brussels.
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Head Market Analyst
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