It’s Risk Off Early as Focus Shifts to Service Sector PMIs Numbers

It’s risk off early on as the markets now look to economic data for direction near-term. Trade negotiations are likely to drag on…
Bob Mason
Forex Markets Currency Trading Concept.

Earlier in the Day:

The economic calendar was on the lighter side through the Asian session in the earlier hours of this morning.

Australia building consents and trade figures and China’s June service sector PMI were in focus through the early part of the day.

For the Aussie Dollar

Building consents rose by 0.7% in May, month-on-month, partially reversing a 4.7% slide in April. Economists had forecasted for consents to remain unchanged.

According to figures released by the ABS,

  • Private dwellings excluding houses rose by 1.2%, while private house approvals decreased by 0.3%.
  • A 14.4% jump in approvals in Victoria drove the increase in May. Falls in Queensland (-6.3%), Western Australia (-4.7%), South Australia (-2.9%) and Tasmania (-1.2%) partially offset the increase.

Australia’s trade surplus widened from A$4.871bn to A$5.745bn in May. Economists had forecasted for the trade surplus to widen to A$5.250bn.

According to figures released by the ABS,

  • The exports of goods and services increased by A$1,442m (4%).
    • Non-rural goods exports increased by A$1,316m (5%), with the export of rural goods and non-monetary gold rising by A$46m (1%) and A$22m (1%) respectively.
    • Net exports of goods under merchanting fell by A$1m (5%).
    • Service credits increased by A$58m (1%).
  • The imports of goods and services increased by A$515m (1%).
    • Capital goods imports increased by A$348m (5%).
    • There were also increases in the imports of non-monetary gold and intermediate and other merchandise goods of A$68m (17%) and A$66m (1%) respectively.
    • Consumption goods imports fell by A$73m (1%).
    • Service debits rose by A$107m (1%).

The Aussie Dollar moved from $0.6891 to $0.69908 upon release of the figures, which preceded China’s service sector PMI figures.

Out of China

The Caixin Services PMI fell from 52.7 to 52.0 in June. According to the latest Caixin China Survey,

  • Service sector companies reported a moderate pickup in new work in June, supported by state policies. Increased client spending also contributed.
  • Employment levels remained unchanged, while the amount of work-on-hand continued to fall.
  • Operating costs were on the rise, with higher staff expenses and increased purchasing activity contributing.
  • Service sectors increased selling charges at the fastest pace in 3-months.
  • Service companies remained strongly optimistic about the economic outlook.
  • At composite level, however, optimism fell to a record low, weighed by the manufacturing sector.
  • China’s Caixin PMI fell from 51.5 to 50.6 in June, its weakest level since last October.

The Aussie Dollar moved from $0.69908 to $0.69902 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.03% to $0.6992.

Elsewhere

At the time of writing, the Kiwi Dollar was up by 0.13% to $0.6682, with the Japanese Yen up by 0.28% to ¥107.58 against the U.S Dollar.

Risk off sentiment through the earlier part of the day contributed to the moves, dampening the effects of positive numbers out of Australia.

The Day Ahead:

For the EUR

It’s a particularly busy day ahead on the economic data front.

Spanish and Italian service sector PMI numbers are due out ahead of finalized French, German and Eurozone service sector PMI numbers.

We can expect the markets to focus on the Eurozone’s composite. While Germany and Italy’s manufacturing sectors are key to growth, service sector activity has provided much-needed support to the Eurozone economy.

Weak numbers would certainly weigh on the EUR.

At the time of writing, the EUR was up by 0.05% to $1.1291.

For the Pound

The UK services PMI is due out later this morning. We can expect the Pound to respond to the numbers.

Uncertainty over Brexit is expected to weigh on the economy in the 2nd quarter. Weak numbers would further tame any hawkish chatter from the BoE near-term.

Outside of the stats, the leadership race will also remain in focus.

At the time of writing, the Pound was down by 0.01% to $1.2592.

Across the Pond

It’s a busy day ahead on the economic calendar, while it’s a half day for the markets ahead of tomorrow’s 4th July holiday.

Key stats due out of the U.S include June ADP nonfarm employment change figures and May trade data in the early afternoon.

Later in the day, factory orders and finalized Markit service sector PMI and the ISM’s June Manufacturing PMI are due out.

We can expect the ISM June manufacturing PMI and ADP numbers to be the key drivers on the day.

Outside of the stats, geopolitical risk will continue to be a key driver mid-week.

At the time of writing, the Dollar Spot Index was down by 0.02% to 96.705.

For the Loonie

May trade data will be of influence mid-week.

We can expect the Lonnie to be particularly sensitive to the numbers ahead of next week’s BoC monetary policy decision.

EIA crude oil inventory numbers will also provide direction late in the day.

The Loonie was flat at C$1.3108, against the U.S Dollar, at the time of writing.

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