Key Notes for November 5th
• Dollar gaining strength on results of the US mid-term elections as Republicans seen gaining seats
• Germany services PMI falls to 7 month low at 54.1
• UK Services PMI weak at 56.2
• Eurozone retail sales m/m decline -1.3%
The US mid-term elections saw the Republicans take control of both the senate and the house, after winning 7 senate seats, in what is being seen as a major anti-incumbent vote. The major focus point has been whether Republicans could gain control and thus have a majority in both parts of the Congress. The mid-term elections see a total of 36 seats out of 100 up for grabs, which was hitherto held by the Democrats.
The markets took the election results in their stride and look poised to open higher today. The Dollar Index was cautious yesterday but is currently trending higher as the markets begin to digest the news.
The PMI data from Eurozone came out mixed with France and Italy’s services PMI coming up above expectations but Germany’s services PMI declined to 54.4, marking a 7-month low in October. The services PMI however continues to remain above the level of 50 which indicates expansion in the sector. The Eurozone composite PMI data came out below expectations at 52.1.
Meanwhile, retail sales for the Eurozone in October declined more than expected, falling -1.3%, well below expectations of a decline of -0.8%. The year to date retail sales also saw slower growth rising only 0.6% v/s 1.4% expectations and down from 1.9% previously.
A report from the National Institute for Economic and Social Research (NIESR) today showed that the UK is expected to maintain its 3% growth with a 2.5% growth estimates for 2015 and 2% growth in 2016. The report suggested that while Britain’s economy was strongest in the developed economies there is a risk of the economy cooling down in the coming years. In regards to the outlook of the Eurozone, the report suggested that economic growth continues to remain ‘very suppressed’ and could pose significant risks to the UK’s economy.
Britain’s services PMI came out below expectations at 56.2, hitting a 17 month low in the month of October. The lower than expected reading is likely to impact the Q3 GDP, considering that the services sector contributes to about 78% to the total GDP output. The first estimate of the Q3 GDP in the UK was in line with expectations at 0.7%, but down from the second quarter which saw GDP grow at a pace of 0.9%. The preliminary GDP for Q3 could now be facing some downward revisions with analysts already calling for a revised GDP growth to 0.5% for the third quarter.
Intra-day, the US Dollar has been gaining ground with the EURUSD currently trading at 1.2481, while the GBPUSD continued to post losses since the London trading session open, trading at 1.5886.
The main risks to the Dollar will be the ADP non-farm employment change which is due to be released during the US trading session.
Consensus is calling for a rise in payrolls of 220k, up from 213k last month. The ISM non-manufacturing data is also expected later which is expected to be soft at 58, after hitting 58.6 the previous month.