US and global growth fears increased after weaker than expected US ISM non-manufacturing data..

US and global growth fears increased after weaker than expected US ISM non-manufacturing data.

The dollar continued to lose ground following the data and EUR/USD tested 1.1000 before fading as weak Euro-zone sentiment curbed support.

After declining sharply, Wall Street equities recovered strongly to post net gains on expectations of further Fed rate cuts which protected global bourses.

Oil prices dipped to fresh 8-week lows before a tentative recovery as equities recovered. Precious metals made net gains on US dollar losses, but failed to hold their best levels.

Sterling pushed sharply higher on hopes for Brexit progress, but also retreated from best levels. Commodity currencies were mixed with net gains for the Australian dollar.

The final Euro-zone PMI services-sector reading was revised down to 51.6 from the flash reading of 52.0. The composite index was only marginally above 50.0 and the weakest reading since June 2013 which suggested that the overall economy recorded only marginal growth. Fears over the outlook hampered the Euro as German yields declined once again.

The ISM non-manufacturing index declined to 52.6 for September from 56.4 previously which was below consensus forecasts of 55.0 and the lowest reading since August 2016. There was a sharp slowdown in both new orders and activity while employment registered only a marginal advance which triggered fresh unease over Friday’s employment data. There was a recovery in order backlogs and prices increased at a faster pace on the month.

Nevertheless, overall confidence in the outlook deteriorated further following the data. There was also a further shift in interest rate futures with the chances of a further rate cut at the October meeting now seen as above 90% from 77% on Wednesday. The dollar lost further ground, but EUR/USD hit resistance close to 1.1000 and retreated to the 1.0970 area in early Europe with inevitable caution ahead of the US employment report later which is liable to trigger high volatility.

The UK PMI services index declined to 49.5 for September from 50.6 and below consensus forecasts of 50.3. The overall tone was downbeat with a further decline in order backlogs and marginal decline in new business while the labour-market deteriorated sharply on the month. There was further evidence that international businesses were switching away from the UK due to political uncertainty. Sterling was cushioned by weak global data and political factors tended to dominate.

EU Council President Tusk stated that the EU remained open, but still unconvinced and remained fully behind Ireland. Although EU officials were sceptical, the absence of an outright rejection helped support sentiment and Conservative Party MPS indicated potential backing which helped push Sterling stronger.

GBP/USD peaked above 1.2400 before fading with GBP/EUR rose towards 1.1300 before retreating slightly. There were reports that the EU wanted the government to improve the offer within the next week with Sterling lower on Friday as GBP/EUR traded around 1.1300.

Economic Calendar

12:25ECB Luis De Guindos Speaks--
13:30USD Average Hourly Earnings (Y/Y)(SEP)3.10%3.20%
13:30USD Average Hourly Earnings (M/M)(SEP)0.30%0.40%
13:30USD Non-farm Payrolls(M/M)(SEP)159K130K
13:30USD Private Nonfarm Payrolls (SEP)135K96K
13:30USD Labor Force Participation Rate(SEP)-63.20%
13:30USD Trade Balance(AUG)-55.00B-54.00B
13:30United States Unemployment Rate(M/M)(SEP)3.70%3.70%
13:30CAD Trade Balance(AUG)-0.40B-1.12B
15:00CAD Ivey PMI(M/M)(SEP)-60.6
15:25FOMC Member Raphael Bostic speech--
18:00USD Baker Hughes US Oil Count713
19:00USD FOMC Member Powell Speech--
19:10FOMC Brainard Speaks--
21:00FOMC Member Richard Harris Clarida Speech--
21:00FOMC Governor Keith Randal Quarles Speech--

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.