Market Report - 03/05/2024

UK services growth accelerates ; Markets await Non Farm Payrolls

This week has seen crude oil prices fall over 6% leaving it on track for its biggest weekly loss in three months, with tensions beginning to ease in the middle east and demands for energy become uncertain.

Earlier this week there were hefty losses with brent crude trading arounds its weakest level since mid-March around $84 a barrel ($90 last week). Oil prices have also been impacted by hopes for some cuts in the US interest rates as lower borrowing costs could increase demand for oil but stubborn inflation in the US is hindering this somewhat.

In the UK this morning the economy has received a boost, as it was announced by S&P Global that services sector growth is now at an 11-month high. This further enforces the belief that the UK is pulling out of a recession. It has been reported that UK services PMI readings jumped to 55 in April which is a big jump from the 53.1 recorded in the previous month of March. Activity and new work rose at the fastest pace since May 2023 adding further to the optimism before next week’s GDP reading. This reading could confirm, officially, that the recession is now over and economists are predicting growth of 0.4% for Q1 2024.

Elsewhere in the UK, the stock market has reacted positively to the services sector news and the FTSE 100 has reached yet another record high. It has risen over 8200 points for the first time, extending its recent rally to over 6% in 2024 so far.

Over in the eurozone, we have a quiet day ahead with little data likely to have much sway. Whilst the UK has a bank holiday on Monday, we await PMI services data for the EU, as well as PPI and investor sentiment data due on Monday next week. Investors are also keeping a watchful eye on the tone of ECB monetary policy, ramping up bets for the ECB to cut interest rates in June.

Across the pond, analysts are predicting that the GBP/USD rate could continue to rise into the weekend since the threshold for further U.S. dollar strength has been raised. The first significant test for the USD will come from the U.S. non-farm payroll data, and as the economy continues its excellent start to the year, investors are already anticipating another above forecast print.

The market is expecting 240k new jobs, and a larger number may help add to the theme of dollar strength which has been so prevalent over the last fortnight. However, we have consistently noted that it is getting harder for the dollar to gain from positive data given that a much later reduction in the key interest rate has already been priced in.

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