US DATA: October Services PMI Trimmed In Final Print, Margin Compression Noted
Nov-05 14:56
The S&P Global service PMI saw a reasonably large downward revision in the final October print although still firmed from September for still its highest since July. At 54.8, it’s still likely to show a much more optimistic business activity than the 50.8 expected for ISM services after its 50.0. Within the S&P Global survey, note growing margin compression in the comment below.
- S&P Global US services PMI: 54.8 in Oct final (cons & flash 55.2) after 54.2 in September
- S&P Global US composite PMI: 54.6 in Oct final (cons 54.9 & flash 54.8) after 53.9 in September
- PMI press release (link): "Latest PMI® survey data from S&P Global showed that the US service sector registered a solid and accelerated pace of activity growth during October."
- "Higher service sector output was accompanied by a firm rise in incoming new business, although an uncertain economic and political outlook reportedly meant that hiring growth was modest and confidence about the future fell to a six-month low."
- "Moreover, selling price inflation was limited by competitive pressures, dropping to its lowest level since April despite elevated cost pressures from tariffs and rising employee expenses."
- Further on margin compression from the S&P Global Chief Business Econ: "However, there are signs that new business is coming at the cost of service providers having to soak up continued high input price growth to remain competitive. Customers are often pushing back on price rises, especially in consumer-facing markets. While good news in terms of inflation, this lack of pricing power hints at weak underlying demand and lower profits."
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GBP: GBPUSD Aided Toward Friday High on NY AM Dollar Weakness
Oct-06 14:41
The USD's NY morning fade has aided EURUSD and GBPUSD well off earlier lows, helping EURUSD almost entirely erase the PM resignation losses. EURGBP still trades heavy, however, meaning GBPUSD's rally has the price within range of the Friday high at 1.3486.
- BoE's Bailey is set to speak later today at 1600BST. It's unclear whether he'll comment directly on monetary policy (he's appearing at Scotland’s Global Investment Summit 2025) - but markets remain strongly of the view that additional BoE easing this year is unlikely (6bps of rate cuts currently priced through year-end).
- That said, it's fiscal and political risk that's likely a more primary GBP driver for the rest of this year - The front-end of the GBP vol curve provide a further signal for market concern over the Autumn Budget. The flatter front-end of the curve and the building premium for 2m implied vols shows markets building a risk premium into the event.
- This effect is particularly evident in EUR/GBP, for which markets continue to favour as a GBP weakness play given the unpredictability of the USD into year-end.
- We see GBP's driver as the fiscal policy mix ahead. The Gilt curve and, in particular, the longer-end has regained a sense of stability after being marked sharply higher at the beginning of September. How valid and long-lasting this proves to be should determine GBP/USD's ability to trade within range of 1.3525 (50% mid-Sept downleg) and make meaningful headway toward the bull trigger of the July 1st high at 1.3789.
BOE: Bailey text due for release at 16:00BST / 11:00CET
Oct-06 14:40
- Governor Bailey is due to speak today to deliver the keynote speech at Scotland’s Global Investment Summit 2025. The text will be released at 16:00BST here.
- There is no title attached to the speech and it is therefore unknown at this point whether Bailey will be discussing anything relevant for monetary policy.
- With speeches from both Deputy Governors Breeden and Ramsden last week leaning to the dovish side (neither ruled out voting for a November cut) and with Dhingra and Taylor voting for a sequential cut in September, Governor Bailey's position as the swing voter has been further cemented in our view.
- Therefore anything he says on monetary policy could be market moving, particularly anything on the dovish side given current market pricing (with only 1bp priced for a November cut and 5bp priced by year-end).
EURIBOR OPTIONS: Call Condor Buyer
Oct-06 14:23
ERM6 98.50/98.625/98.75/98.875c condor, bought for half in 10k (ref 98.07).
