Global Market Watch - 5th August 2021
The pound was pushed higher in early UK trading because of a combination of euro weakness and sterling strength after UK final services PMI beat expectations of 57.8 and were released at 59.6. However, there is a hint of caution in the data as the rate of growth was the weakest since March. It was noted that staff shortages and supply issues were a constraint on capacity. Interestingly tight labour market conditions led to greater wage pressures across the service industry. Later in the day GBPUSD was lower after Fed Vice Chair Clarida spoke. The market will now look to the Bank of England meeting today to hear the Bank’s comments on inflation and the economy and whether this will change policy. The Monetary Policy Committee is expected to vote 6:2 in favour of continuing the current QE policy. If more members vote to reduce the bond buying that will encourage sterling strength.
Eurozone final services PMI slightly missed the estimate of 60.4 as it was released at 59.8. However, it still showed that business activity grew at its fastest rate in 15 years in July with services activity accelerating during the month. Last month was the 5th successive month for the expansion of private sector output. However, the markets focus was elsewhere as ECB Governing Council Member Kazak said that it would be ‘premature for the ECB to make a judgement on the future of PEPP (Pandemic Emergency Purchase Programme) in September. The market had been looking earlier expecting an update on PEPP at this time because of guidance from ECB economist Lane. The Eurozone retail sales data later released was quite positive as Eurostat announced that retail sales rose by 1.5% in June.
The US dollar was weak against the commodity currencies and the pound but gained against the euro and yen after the comments from ECB Kazak encouraged euro weakness. It was then down to Fed Vice Chair Clarida to speak. The market had been wondering whether he would be hawkish with his comments and they were not wrong. He said that the ‘necessary conditions for raising the target rate for the federal funds rate will have been met by year end 2022. His comments pushed US yields higher alongside the US dollar.
Overnight employment data from New Zealand was very positive with the unemployment rate for Q2 this year dropping from 4.6% to 4%. This encouraged NZD buying with some analysts arguing that the Reserve Bank of New Zealand will be forced to hike interest rates as soon as this month. The NZD movement higher encouraged AUD buying as well. Even though China is experiencing a new wave of the pandemic which has now reached Beijing for the first time.