The start of a new month brings with it the Purchasing Managers’ Index (PMI) data and today will see the release of the UK Construction PMI for February. Expectations are that growth will continue to slow, although should deliver a reading of 50.1, just above the break-even 50.0 mark. With all three PMI data releases softening since the end of 2018, there is greater scrutiny of each subsequent release for signs of weakness in the UK economy.
Eurozone Retail Sales for January are set for publication and could provide something of a bright spot in terms of economic data from the currency bloc. After December’s disappointing 1.6% month-on-month decline, the market is expecting to see a return to growth with a reading of +1.30% being forecast. This may be sufficient to provide some support to the Euro, although the European Central Bank’s interest rate decision later in the week will have the potential to provide some significant influence.
The UK Services PMI for February covers the dominant sector of the country’s economy and markets will be bracing themselves for bad news. Forecasts are for a reading of 49.7, below the break-even 50.0 mark, indicating that the sector is contracting. Given the recent run of gains seen by the Pound, this could lead to a sharp reversion for the currency. The bigger issue for Sterling is arguably progress with Brexit, but in the absence of developments there, these key macroeconomic releases will have the potential to provide short-term direction.
US Trade Balance data for December will be published and expectations are for the deficit to widen. Forecasts of $56 billion would eclipse October’s figure and make for the worst reading in almost a decade, calling into question the effectiveness of Donald Trump’s trade tariffs. The shortfall in durable goods for December adds weight to the fact a disappointing number will be recorded, after orders for new aircraft failed to take off as expected.
The ADP Employment Change for February is also set to be issued and will provide the first insight as to the state of the labour market. Expectations are for a modest decline on last month’s 213,000 new hires, with a forecast of 190,000 being tabled. That remains a robust figure, in line with the current employment trends, which has undermined a market-led slowing US narrative and rationale for weakening monetary policy. Any indications that the Fed will continue to run down its balance sheet of corporate bonds should buoy the US Dollar.
The highlight today will be the European Central Bank Rate Decision and subsequent press conference. Market consensus is now moving towards the idea that both the global economy and that of the Eurozone are slowing. Consequently, Mario Draghi and his team may have missed any opportunity to normalise monetary policy during this economic cycle. Any delays in rate hike expectations or details of new stimulus measures would almost certainly undermine the Euro.
US Non-Farm Payrolls and Average Hourly Earnings for February will likely dominate the agenda. The labour market is expected to remain strong, as will likely have been illustrated on Wednesday with the ADP print, but the bigger issue will be wage growth. In a full employment environment, wage growth should put pressure on inflation. Average hourly earnings are expected to have grown by around 3.3%—a contribution to the inflation picture which is difficult to explain away. A high reading has the potential to bolster confidence in a rate hike later in the year and in turn lift the Greenback, too.