Europe
Stocks in Europe traded modestly lower on Wednesday after service sector PMIs slipped in a number of European nations in February when a small rise was expected.
Germany, Italy and Spain all missed expectations of a rise in their service sectors in February and in fact saw activity slow while France was flat on the month. European markets have been driven higher by the prospect of quantitative easing in the region so today’s economic data is really an opportunity to take profits ahead of the kick-off of the program by the ECB tomorrow.
UK
A slowdown in the UK’s service sector during February alongside the rest of Europe weighed on UK stocks. Apprehension is building leading into the Bank of England and European Central bank meetings tomorrow.
The FTSE 100 gave up the 6,900 level taking it to almost two-week lows. The gains made by Standard Chartered (LONDON:STAN) and ITV Plc (LONDON:ITV)after well received earnings were not enough to undo the damage done by disappointing results from Fresnillo (LONDON:FRES).
Shares of Standard Chartered traded higher after the EM-focused bank maintained its dividend despite reporting a dive in annual profits.
After a bumper set of results ITV raised its dividend by 34% and offered a special pay-out sending shares up over 5%.
Fresnillo stock fell by as much as 4% after reporting a sharp slide in profits thanks to the dramatic fall in commodity prices. Glencore Xstrata Plc (LONDON:GLEN) shares fell in sympathy with Fresnillo after a placing of shares.
US
US data was on the whole positive on Wednesday and demonstrated strength in the US economy that could be followed by another strong month of job gains on Friday. Should non-farm payrolls beat expectations; a mid-year rate hike will be back on the table for the Fed and could put equities under pressure.
ADP just missed expectations but there were positive revisions to January and every month of the fourth quarter underscoring the strength of the US labour market. ISM non-manufacturing hit 56.9 in February against expectations of 56.5 and the 56.7 seen in January.
With India and Poland cutting rates on Wednesday and the ECB about to start QE tomorrow; the strong US economic data was a reminder of the divergence in monetary policy between the US and the rest of the world.
FX
The US dollar was broadly strong today following strong a strong ISM-manufacturing report and weaker oil prices.
The euro fell to new ten-year lows below 1.10 against the greenback on Wednesday after disappointing service PMIs across Europe. Having failed to hold prices above 1.13, euro bulls appear to be capitulating, unwilling to get in the way of the barrage of printing about to start after Thursday’s ECB meeting.
The pound fell back below 1.53 after the UK suffered its own disappointing service sector PMI data. Having fallen from above 1.55 in less than a week, the pound is looking weak in face of a strong US dollar.
The yen firmed against the dollar. 120 remains a ceiling for USDJPY with the pair trading back at 119.50.
The Aussie dollar saw some follow-through on yesterday’s strength after the RBA held put on rates against expectations of a rate-cut. Above 0.79 against the USD could open up a move to 0.83.
Commodities
Gold was hovering around $1200 per oz ahead of US unemployment data on Friday that could show ongoing strength in the US labour market and reiterate a mid-year rate hike. As interest rates go up, gold loses its lure as a non-yielding asset.
Silver has been flat since plummeting on Tuesday to an almost two-month low.
Copper stockpiles in the London Metal exchange have risen by 3.6% to the highest in a year as Chinese demand has remained weak since the New Year holiday. Copper prices initially sank on Wednesday before rebounding off the recent breakout area at $2.65 per lb.
US and international oil prices continue to dance to different tunes, this time WTI had the relative strength. Brent crude sank after Saudi oil minister Al-Naimi indicated there would be no emergency OPEC meeting. WTI crude crashed after another massive build of US stockpiles with 10.3M barrels added against expectations of 4.0M.
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