US markets keep close eye on latest PMI release

The Bank of Japan have highlighted their unpredictable nature overnight, with the widely expected rate hold coming alongside comments that signal a lack of desire to shift from its ultra-accommodative policy stance anytime soon. While inflation remains above target, their outlook for rates signal a lack of confidence that wage growth will be strong enough to maintain inflation around target once rates are raised.

The FTSE 100 has outperformed its peers in early trade today, with the Bank of England’s apparanmt end to their tightening cycle driving the pound lower. The international nature of the FTSE 100 benefits it in times of concern, with sterling weakness lifting the value of foreign earnings which are then converted back into pounds. While the BoE decision to hold rates steady hurt sterling yesterday, the sharp deterioration in the services PMI survey this morning further highlighted the weakening outlook for UK growth going forward. The BoE clearly have a long way to go in a bid to drive inflation back down to target, but recent signs of weakness in the housing market and services sector provide a warning that this tightening phase may gone far enough.

PMI data remains a key driver of sentiment going forward, with US services and manufacturing figures expected to deteriorate this afternoon. Coming off the back of a rate decision that saw markets hit hard on the prospect of a multi-year normalization phase for interest rates, traders will be watching today’s PMI surveys for any signs of impending weakness as this rates work their way through the economy. Ultimately, inflation will likely remain an issue as long as consumers continue to pay higher prices, thus highlighting the threat posed by rising real wages.