Intraday Market Thoughts

US Services ISM Looking to Defy Eurozone After UK Bounce

by Patrik Urban
Dec 5, 2011 13:56

UK PMI services rose but employment dropped; Eurozone retail sales rose m/m but fell y/y; Italy approved austerity and its 10 year yield declined. Market turns to ISM non manufacturing and factory orders. Risk appetite back on the rise at the expense of broad weakness in USD and JPY. Dow futures +151 pts, ES + 18 at 1261. Premium Intermarket Insights due ahead of the US session.

Traders await Merkel-Sarkozy meeting in Paris where, among other topics, the possibility of a fiscal union will be discussed. A press conference is scheduled for later today but all details will likely be released only on Friday during the EU economic summit. There will likely be several bouts of rumour-driven market moves and retracements.

10 year Italian bond trades comfortably below the critical 7% around 6.43% after the Italian government approved austerity measures worth of EUR 30 bln. 10 year German-Italian spread is tighter at around 4.43%.

UK services PMI rose in November to 52.1 from previous 51.3. Analysts expected worsening towards 50.6 so GBPUSD jumped higher on the release. However, it quickly lost its gains and within minutes fell to pre-release levels as November saw the fastest pace of job losses in 15 months. A contraction in employment was recorded four times out of the last five months. Nevertheless, resilient service sector could imply that the MPC will not increase the Asset Purchase Facility after its Thursday meeting and will wait instead for additional data.

Eurozone data was mixed today. October retail sales increased +0.4% m/m after dropping -0.6% a month earlier but the annual result recorded a -0.4% decline after September's -1.4%. Eurozone Sentix investor confidence fell further in December to -24 from November's -21.2 which is a sixth back to back decline.

The New York session will bring ISM non-manufacturing that is expected to rise to 53.8 in November from 52.9 in October and October factory orders that are seen lower at -0.3% from previous +0.3%. Both releases are due at 10:00 am ET.

Market volatility could also increase at 12:10 pm when FED Chicago president and FOMC member Charles Evans delivers a speech in Indiana on the US economic outlook.


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