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Services PMIs Euro area ticks up UK big miss

Market Analysis

EURGBP, 1H               

Eurozone PMIs signal strong start to 2017. The final reading of the Services PMI came in at 54.7, a tad higher than the original release of 54.6 and unchanged from the December number. The composite was revised up to 54.4 from 54.3 reported initially, and now also unchanged from December. Markit said the Eurozone made a strong start to 2-017 with output growth maintained at a 5 1/2 year high and job creation accelerating to a near-nine year record. Output increased in the four big economies and while German and Spanish readings eased slightly, France is finally catching up and the recovery is overall looking broader and more stable. Markit reported that the outlook for the Eurozone economy and labour markets also remained positive with growth of new business accelerating to a 14-months high. And the future output index, which tracks companies’ expectations about level in output in one year’s time, rose to its highest level since the series began in July 2012. At the same time inflationary pressures continued to intensify, which is something the ECB will have to keep a close eye on, although much of Draghi’s ongoing policy accommodation will also be an insurance policy against mounting political risks.

Meanwhile in the UK services PMI’s missed expectations coming in at 54.5 against market expectations of 55.8. The strong number last month (56.2) and the strong end to 2016 shows signs of slowing. Market the producers of the data noted that expectations are still ok but that higher costs could start to eat into employment. “The main area of concern is the extent to which companies’ costs are rising across the economy, with the rate of inflation accelerating to a pace not seen since before the global financial crisis.There is evidence that higher costs are deterring some companies from taking on extra staff, with the January surveys finding employment to have increased at the slowest rate since August. Only construction companies stepped up their hiring at the start of 2017.”

Cable immediately sunk below 1.2500 and trades at 1.2481, GBPJPY dropped to 141.13 and EURGBP spiked over 0.8600 and trades at 0.8614.

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Stuart Cowell

Senior Market Analyst

HotForex

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