Daily FX Update, 04 March 2016

OVERNIGHT MARKET UPDATE:

·         US – Non-manufacturing ISM held steady at 53.4 in February, suggesting some stability may be returning to the index following recent declines. The business sub-component jumped to 57.8 vs 53.9, new orders were slightly weaker at 55.5 vs 56.5, but remain healthy. The employment component dipped to 49.7 vs 52.1. Overall the report points to steady growth in the services sector.

·         US – Dallas Fed President Kaplan (non-voting member) said that global financial conditions have likely restrained the US economy, “akin to some level of increase in the fed funds rate”. He also said that the FOMC should “avoid having a predetermined mind-set” for policy, and that although the US economy “will likely be resilient in 2016”, and recent developments “call for patience and further diligence”.

·         UK – The service sector expanded at the weakest pace in nearly 3 years in February, suggesting that concerns about “Brexit” and global growth weighed on orders and activity. The PMI services data dropped to 52.7 vs 55.6, and below market expectations for a marginal drop to 55.1. This, combined with the lower manufacturing PMI dragged the composite PMI down to 52.8 vs 56.2.

·         Currencies – The USD was under-pressure as softer details emerged from the services sector and Fed President Kaplan delivered a cautious message.

·         Equities – US equities fluctuated over the course of the trading day as traders looked ahead to the release of the non-farm payroll data. However, major averages managed to close modestly higher.

·         Rates – US Treasuries rallied late in the London session, with Kaplan’s speech likely the catalyst for the move.

·         Energy – Crude oil prices were stable, with the decline in US oil production providing support to prices. EIA data showed US output fell for a sixth week to 9.08 million barrel per day, the lowest level since November 2014.

·         Precious Metals – Gold prices broke out from the trading range after weaker than expected US factory orders and slower growth in service industries.