Germany's private sector gained momentum in January as the services sector picked up and the pullback in manufacturing eased. IHS Markit's flash composite Purchasing Managers' Index (PMI), which tracks the manufacturing and services sectors that together account for more than two-thirds of the economy, rose to 51.1 from 50.2 the previous month. It was the highest reading in five months. The German economy expanded by 0.6% last year, its weakest growth since 2013, as manufacturers struggled with a slowing world economy and rising uncertainty caused by trade disputes and Britain's planned-but-delayed departure from the European Union. Figures were less upbeat in France where business activity expanded at a weaker pace in January as nationwide strikes weighed on the euro zone's second-biggest economy. The composite flash purchasing managers' index (PMI) slipped to 51.5 points in January from 52.0 in December, marking a four-month low. The January reading for the dominant services sector fell to 51.7 points from 52.4 in December, reaching a four-month low, while the manufacturing PMI rose to 51.0 points from 50.4 in December. In the UK, both figures showed strong improvement with manufacturing PMI improving to 49.8 from the previous 47.5 and services PMI jumping to 52.9 from 50 in December. 1 British pound now buys 1.3137$ and 1 euro buys 1.1046$.
The JPY rose this morning, after the latest figures from Japan showed improvement and alleviated market fears of a recession. Despite factory activity contracting for a ninth consecutive month, the pace of showdown has decreased and is indicating a bottoming out trend. Export numbers have also expanded for the first time in 14 months serving as a sign of pickup in global demand. Meanwhile, anxiety over China’s coronavirus outbreak has too propped up the safe-haven JPY. As the Lunar New Year holidays have begun in China, and the virus could be latent for about a week, the fear that the disease would widespread during this period have kept the JPY buoyant. However, this may just serve as a thematic play, and markets are ultimately looking towards the state of the Japan economy as well as the decision by the BOJ to determine yen’s future direction. The BOJ kept its policy unchanged this week and BOJ Governor Kuroda reiterated the BOJ’s resolve to maintain its ultra-easy policy in light of soft inflation and lingering uncertainty abroad. While ticking higher, inflation remains far from the BOJ’s elusive 2% target. Thus, coupled with the economic impact of the sales tax hike implemented last October which is expected to cause consumer confidence to be impacted further, this jump may be short-lived as there could be more weakness for the JPY in the following weeks.
Oil prices fell further amid worries that a new coronavirus in China that has killed 25 so far may spread, curbing travel, fuel demand and economic prospects. Prices recovered initially after a previous drawdown in U.S. crude stocks but were set to fall heavily for the week. Brent is now at 61.43$ after falling 1.9% the previous session and down about 4% for the week. U.S. West Texas Intermediate was up 13 cents, around 0.3% higher at $55.72 a barrel. The contract fell 2% yesterday and is 4.6% lower for the week.
Financial firms in Britain should be ready in case no trade agreement is struck with the European Union by December, Nausicaa Delfas, an executive director of International and a member of the Executive Committee at the Financial Conduct Authority said yesterday. Britain leaves the EU next week, followed by a transition period that ends in December. Britain and the EU will formally begin trade talks in the coming weeks. Britain’s banks, trading platforms and insurers hope to get access to the EU market after December under the EU equivalence system, through which Brussels grants access to countries whose regulatory regimes it deems comparable to its own. Britain has already put all EU financial rules into UK law but will also need to decide whether EU-based financial firms can have access to UK investors under the same equivalence system it has inherited by adopting the EU laws. The EU is committed to completing its equivalence assessments by the end of June but banks fear it will be overshadowed by broader UK-EU trade talks. To date, equivalence has been used by countries like the United States, Singapore and Japan.