Service sector PMI bounces; GBP ticks higher

Summary:

• UK Services PMI: 50.0 vs 49.6 exp

• Data follows manufacturing beat 

• Bull flag seen in GBPJPY 

A leading industry survey has shown a better than expected view for the UK service sector, with the PMI print for October coming in at 50.0 compared to a consensus forecast of 49.6 and a prior reading of 49.5. The release means that we have, by the skin of our teeth, avoided the first consecutive readings in contraction territory since the summer of 2016 when these surveys took a hit from the shock outcome of the Brexit referendum. The manufacturing equivalent also came in better than forecast last Friday and despite the readings remaining at levels that are far from stellar, they represent a welcomed improvement nonetheless.

Manufacturing and service sector PMIs improved last month with both now back near the 50 mark. However, they do remains towards the lower reaches of the range seen in the past 5 years. Source: XTB Macrobond 

With a general election in less than 6 weeks and none of us any the wiser how Brexit will eventually play out, it almost goes without saying that political uncertainty remains at elevated levels but these latest batch of economic releases suggest that there has at least been a small uptick in leading indicators of late and the UK economy continues to exhibit resilience to clear headwinds.  

With this data being released just over 48 hours before the Bank of England’s rate decision it takes on a greater significance and while it is highly unlikely to lead to any change to interest rates it will no doubt play on the mind of rate-setters during their policy discussions. 

The pound is back below the $1.29 handle this morning but this is more due to a broad move higher in the buck yesterday rather than any real weakness in sterling. The FTSE continues to hover around the 7400 handle and while it trades near its highest level in 5 weeks it’s still lacking the gusto shown by stock markets across Europe and the US in recent sessions.

A possible bull flag appears to be forming on GBPJPY with the market’s range narrowing after a strong move higher at the start of last month. The market is also around the 61.8% Fib retracement of the decline from the highs of 149.71 seen in the second half of 2018 to the low of 126.53 made this summer. Source: xStation