U.S. Markets close in 1 hr 17 mins

It’s Been Busy First Half of the Week after the Holidays…

Bob Mason

It’s been a busy start to the week on the economic calendar, especially for the Dollar, How are the PMIs looking and what kind of figures can we expect?

In the early part of the week, we saw service sector PMI numbers for the Eurozone, the UK, the U.S, China, and Japan.

The numbers out of the Eurozone seemed to affirm the ECB’s view that private sector woes had bottomed out.

One concern, however, was that the pace of hiring fell to the weakest in 5-years.

Service sector activity continued to deliver, with the Eurozone Services PMI hitting a 4-month high.

For the Eurozone, there was also good news at the composite level, with Germany moving off the bottom of the rankings with a 4-month high.

From the UK, new orders jumped, with optimism hitting its highest level since 2018, as the sector avoided a contraction in December.

Hopes are for the UK economy to have turned a corner following the Johnson General Election victory.

While uncertainty remains over what the Brexit deal will look like, there is finally certainty over Brexit.

From the U.S, the markets preferred ISM Non-Manufacturing PMI impressed, as did the finalized Markit Survey PMI for December.

With service sector activity key for the U.S economy, the latest numbers further support the more optimistic outlook.

Out of China, service sector activity saw slower growth. There was no major panic, however. With a phase 1 agreement to be signed next week, hopes are for a strong rebound in private sector activity.

Let’s focus on the Eurozone, What are the figures coming out of the Eurozone following the holidays. How is it looking on the retail and inflation front?

We saw impressive retail sales figures out of both Germany and the Eurozone for November.

German retail sales jumped by 2.1%, month-on-month, with retail sales in the Eurozone rising by 1.0%.

Following some disappointing numbers for October, the latest figures, coupled with a pickup up in service sector activity support the ECB’s views on the economy and the uptick in the EUR.

It’s looking a little more optimistic for the Eurozone economy, with consumers spending a key contributor. With the imminent signing of the phase 1 agreement, private sector activity should also benefit.

That is assuming, of course, that the U.S President doesn’t target the EU next on trade…

On the inflation front, the core annual rate of inflation held steady at 1.3% in December. The annual rate of inflation also came in at 1.3%. There are no pressures on the ECB, from the inflation standpoint, with inflation still sitting well below the ECB’s targets.

It has been a quiet start to the week in the Far East. Do you expect Japan and China to pick up in the week ahead?

Out of Japan, the service sector PMI was particularly disappointing on Tuesday.

It was the worst 4th quarter since the 4th quarter of 2016 for the private sector.

Demand conditions weighed at the end of the year. Throw in the government’s sales tax and the recent slide in household spending and it doesn’t look good for the economy.

There’s a lot hanging on the phase 1 trade agreement to boost global trade…

Out of China, the service sector PMI failed to impress, with manufacturing sector activity also reporting slower growth.

It is a wait-and-see scenario for now, however. Monetary policy and fiscal support and a trade agreement should ease some pressure on the private sector.

It is very clear that geopolitical risk is very high on the agenda at the moment with the unrest in Iran. How will the market react to this threat?

Late last week and through the 1st half of this week, we saw an escalation and a rapid de-escalation in the Middle East.

The U.S President’s speech on Wednesday certainly eased market jitters over a possible conflict in the region.

The ball now sits firmly in Iran’s court. Assuming that the no-casualty outcome to Wednesday’s missile strikes was intentional, there may be hopes of a return to the negotiating table.

On Thursday, Trump called on remaining participants of the nuclear agreement to pull out in order to set up talks.

We could be a long way off having a deal in place, however. Iran is unlikely to give up power within the region too easily.

Near-term, we can expect plenty of market sensitivity to chatter from both the U.S and from Tehran.

First up, Iran will need to reign in its uranium enrichment program as a sign of good faith…

This article was originally posted on FX Empire