CANADA DATA: PMI Indicates Return To Expansion For Services, But Outlook Flat
Nov-05 14:56
Canadian Services PMI jumped in October to 50.5 from 46.3 prior, an 11-month high. It's the first above-50 reading since November 2024 and the 3rd highest reading in the last 29 months.
- The report itself isn't so enthusiastic about the significance of this development however: "Whilst a noticeable improvement on the severe declines seen earlier in the year, growth was nonetheless marginal as some hesitancy and uncertainty amongst clients continued to weigh on new business volumes.
- And services employment appeared to be negative: "Staffing levels also fell as firms generally chose not to replace any leavers and confidence remained below trend." That's the second consecutive month of employment contraction.
- Meanwhile businesses didn't appear to be able to pass through price increases, suggestive of soft demand: "Latest prices data showed another round of steeply rising operating expenses, although competitive pressures meant the degree of cost pass through to clients remained relatively subdued. "
- While Manufacturing remained in contraction in October, at 49.6 it was enough to nudge the Composite reading above 50.0 also for the first time since November 2024 (prior was 46.3). That's largely consistent with a positive GDP reading though at best at a very flat rate.
- Additionally while private sector output may have risen in Octoberm "Activity growth was however not accompanied by an
increase in new orders, which fell modestly in October whilst there was a further drop in employment. Backlogs of work
declined steeply whilst confidence in the outlook was again below trend."
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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).
