Europe To Start Higher, Service Sector Data In Focus

A strong lead from Wall Street overnight and sustained recovery in China’s service sector is setting European bourses up for a positive start on the open

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A strong lead from Wall Street overnight and sustained recovery in China’s service sector is setting European bourses up for a positive start on the open.
Wall Street advanced, shrugging off disappointing ADP private payroll data, recording its biggest daily gain since July. US stock markets trading around record highs whilst policy makers and governments struggle to cushion the blow from the deepest downturn in decades raises questions over the strength of the stock market rebound.

China’s service sector extends recovery
The Chinese Caixin service sector PMI advanced for a fourth straight month in August hitting 54 on the PMI gauge. The level 50 separates expansion from contraction. Data showed that hiring picked up for the first time since January adding to signs that the economic recovery in China is gaining traction, boosting sentiment

All about service sectors
Service sector data will be in focus across the board. The UK is expected to confirm the initial reading of 60.1 which indicates that activity in UK’s dominant sector remains strong. However, the waters are expected to get much choppier over the coming months as the government continues to withdraw from the furlough scheme and as tax hikes are implemented in order to cover at least some of the huge levels of government spending.
Italy and Spain, countries which are heavily dependent of tourism are expected to see their service sector activity contract in August, the peak tourist month. With most still too nervous to travel and Spain on the quarantine list, the economic recovery in these two countries could be delayed and more drawn out than peers.

Euro extends losses
The Euro is under pressure even before the service sector releases and EUR/USD is the worst performing major in early trade. The Euro is extending its retreat from $1.20 which had started on Tuesday after ECB’s Philip Lane said the euro-dollar rate does matter. His comments hinted at concerns over the strength of the common currency. These comments coincided with inflation unexpectedly turning negative and the Euro hasn’t been able to find its footing since.

ISM non-manufacturing 
The US ISM non manufacturing report will be eyed for further clues over the state of the US economic recovery. Expectations are for dip to 57 down from 58.1. The employment component will be under the spotlight, particularly following yesterday’s weaker than forecast ADP report. Signs of weakness in the employment component combined with the softer than forecast ADP reading won’t bode well for Friday’s non farm payroll. 

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