European FX Outlook: Services PMI set to complement the picture of a manufacturing slowdown

What you need to know before markets open

• The camp of the Federal Reserve Bank regional Presidents that seen the current level of the US policy rates being close to neutral level is growing with St. Louis President James Bullard joining Minneapolis Fed President Neel Kashkari, both being non-voting FOMC members in 2018.
• The trade tariffs ping-pong was not enough to trigger massive equity markets sell-off on Wednesday with the most likely scenario of the US and China might prefer a diplomatic solution to the current issue of trade tariffs over unilateral decision of each party.
• Federal Reserve Governor Lael Brainard commenting on the current situation said that trade policy is "certainly something that I take into account, in thinking about risks.”
• Services PMI in the Eurozone and the UK headline Thursday providing a complementary piece of information about the state of the economy after manufacturing activity decelerated sharply from multi-year highs.

Thursday’s market moving events

• Australian trade balance reached a surplus of  A$825 million in February, down from A$1.06 billion in the previous month.
• German factory orders are seen rising 1.5% m/m in February.
• German final services PMI is expected to fall to 54.2 in March with composite PMI taking into account services and manufacturing falling to 55.4 in March.
• The Eurozone final services PMI is anticipated to fall to 55.0 in March with composite PMI taking into account services and manufacturing falling to 55.3 in March.
• The UK services PMI is expected to decelerate to 54.0 in March.
• The Eurozone retail sales are seen rising 0.5% m/m in February while increasing 2.1% y/y.
• The US trade balance is seen rising to -$56.8 billion in February.
• The US initial jobless claims are seen reaching 225K in the week ending March 30 after reaching a 4-decade low of 215 K.
• Canadian trade balance is seen reaching a deficit of -C$2.0 billion in February.
• SNB Governing Board member Andrea Maechler is scheduled to deliver a speech titled "Today and tomorrow: a look into the digital future" at a Money Market Event hosted by the SNB, in Zurich at 16:00 GMT.
• Federal Reserve Bank of Atlanta President Raphael Bostic is due to speak about financial literacy at the University of South Florida, in Sarasota at 15:00 GMT.

Major market movers

• The US Dollar was initially sold off on Wednesday as China said it will strike back imposing $50 billion tariffs burden on the US import of cars, chemicals, and aircrafts, but the US Dollar managed to gains some power back after ADP private employment report saw 241K new jobs added in the US in March rising hopes for strong reading in government’s NFP report due this Friday.
• Watch EUR swinging on trade wars sentiment and services PMI.
• With construction sector falling to the territory of the economic contraction in March, the GBP suffered only temporarily sitting firmly above 1.4000 level. With robust services sector in the UK, negative surprise on the downside should see an immediate Sterling selloff.

Wednesday macro summary

• Australian retail sales rose 0.6% m/m in February.
• China’s services PMI decelerated to 52.4 in March from 54.2 in February.
• Italian unemployment fell to 10.9% in February.
• The UK construction PMI decelerated unexpectedly sharply falling to 47.0 in March indicating economic contraction of the industry.
• China said it will impose trade tariffs on imported cars, chemicals, soya and aircraft from the US in an effort to fight back the move from White House announced overnight.
• The Eurozone unemployment fell to 8.5% in February.
• The Eurozone flash CPI increased 1.4% y/y in March with core CPI rose 1.0% y/y, unchanged from February level.
• The US ADP private employment report saw 241K new jobs added in March beating the expectations of 208K.
• The ISM index in non-manufacturing decelerated to 58.8 in March from 59.5 in February.
• The US factory orders rose 1.2% m/m in February reversing a decline of -1.3% m/m in January.
• St. Louis Federal Reserve Bank President James Bullard said current interest rate level is close to neutral rate, joining Neel Kashkari in the camp of Dovish FOMC members. Bullard also said that even outsized wage gains would not ultimately have too much effect on inflation confirming that tariffs between US and China are of much more significant concern in terms of inflation.
• Federal Reserve Bank of Cleveland President Loretta Mester did not comment on interest rates or the New York Federal Reserve Bank President appointment in her prepared remarks.