March 05, 2024

“Investors will be looking to the ISM services PMI for some clues to trade on today, but the looming US jobs data and the ECB decision remain the dominant events hanging over the currency markets. JOLTS, Powell, and the Bank of Canada kick off a busy few days tomorrow.”

Sam Cornford – Head of Trading

Main Headlines

On Monday, Brussels imposed a fine of €1.84bn on Apple for impeding competition from music streaming competitors through restrictions on its App Store, marking the tech giant’s first-ever penalty for violating EU regulations. The European Commission’s decision stemmed from allegations that Apple hindered Swedish streaming service Spotify and others from informing users about payment alternatives outside its App Store.

Support for the long-standing Conservative Party has plummeted to its lowest level in over forty years as the upcoming general election looms closer, according to an Ipsos opinion poll released on Monday. The poll indicated that Conservative support, after 14 years in power, had dropped to 20% by the end of February, marking a seven-percentage-point decrease in just a month. Meanwhile, the opposition Labour Party surged ahead with 47% support.

GBP

Traders will be hoping for tomorrow’s budget update to breathe some life into sterling this week, having drifted sideways as it awaits March’s headline releases. In one of this week’s few data releases, British Retail Consortium retail sales growth data released overnight weakened to 1.0% in February from 1.4% in January. After printing at its highest level since June in the first estimate, the final services PMI figure this morning is unlikely to shift the dial significantly for the UK economy. The market focus is squarely on tomorrow’s budget, when Hunt is set to hand out some measured pre-election giveaways to lift his party’s gloomy position in the polls.

EUR

The euro has eased slightly but remains trading around its highest ranges since early February, held up by an improving risk environment. A string of final services PMIs has posted some slightly improved numbers so far this morning, in further positive signs for a bottoming out of the eurozone economy. The activity data is beginning to show a widening divergence between the southern and northern countries in the bloc – while Spain and France are comfortably within the realms of expansion, Germany and France continue to linger below the 50.0 mark. Thursday’s ECB decision is the dominant topic of conversation for the single currency, with markets raring to trade on the contents of the macroeconomic projections and the accompanying policy statement.

USD

The dollar’s new year rally has tapered off over the past three weeks as traders run out of room to price out rate cuts and buoyed risk sentiment tempts investors to deploy capital in riskier assets.  The Fed’s Bostic reiterated yesterday the hawkish stance that the strength of the US economy has lifted the pressure to act quickly on rate cuts amid risks of sticky and resurgent inflation later in the year. The ISM services PMI is today’s headline data release, which is set to ease slightly to 53.0 from 53.4 but to reconfirm this economic strength. But there is a good chance that this is brushed off, with tomorrow’s job openings data and testimony from Fed Chair Powell to Congress likely to give stronger cues on the interest rate trajectory.

Markets

Yesterday’s session saw equities hit further record highs, but the risk rally has taken a breather this morning. Asian stocks have taken the biggest hit after the kick off for China’s National People’s Congress underwhelmed investors with a lack of fresh stimulus measures to achieve the ambitious 5% growth target – Hong Kong’s Hang Seng has slipped almost 3%.

Main Economic Events (All Times CET)

5:00am: BoJ’s Ueda speaks
10:00am: Eurozone Final Services PMI
10:30am: UK Final Services PMI
3:45pm: US Final Services PMI
4:00pm: US ISM Services PMI
6:00pm: Fed’s Barr speaks

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