U.K Services Surprises to The Upside But, Activity Remains Subdued

The UK service sector PMI has surprised on the upside for November. Analysts were expecting a reading of 50.5, however, the final reading has been revised higher to 51.3, which suggests that sentiment in the service sector is not as bad as feared, although activity continues to remain at a subdued level. This is a concern for overall growth since the service sector does the heavy lifting for the UK economy.

The composite PMI for the UK also defied forecasts and rose to 51.2. This suggests that the economy lost momentum in November, the composite PMI was 52.2 in October, however, any slowdown may not be as bad as feared.

Pound bounces as the ISM not as weak as feared

The pound has extended its gains vs. the USD on the back of this data and is marching towards $1.33. Although the data was not as bad as expected, S&P Global said that there were some significant signs of weakness in this report, including fragile client sentiment, weak new orders and elevated margin pressures. This triggered the fastest decline in the employment subcomponent since February, when the service sector was still reeling from Rachel Reeves’s first budget. The employment component has fallen in every month since October 2024, which adds to evidence that the BOE should cut interest rates due to a softening labour market.

The survey noted heightened caution ahead of last week’s Budget, which led to delayed investment decisions. It also said that soft domestic demand caused service sector providers to look abroad to other markets, however, exports softened in November, which could be a sign that US tariffs are finally starting to bite.

Stocks are waiting for direction

Stock markets are mostly ticking higher on Wednesday, however, they remain mostly directionless as the focus shifts to the release of delayed US economic data, and as we wait for next week’s key FOMC meeting. News that Russia and US talks have failed to reach an agreement on ending the war in Ukraine have not had a material impact on risky assets, however, the oil price is ticking higher, and stock indices are trading in a tight range.

Sainsbury’s slumps as it’s ditched by Qatar

Stocks are mixed this morning, the Eurostoxx 50 is up 0.4% while the FTSE 100 is lagging behind, weighed down by financials, utilities and consumer staples. News that the Qatari investment fund is divesting its stake in Sainsbury’s has weighed heavily on the grocer’s share price. It is down more than 4%, after falling as much as 8% on the news. Its shares have taken a battering in the past month and are lower by nearly 10%. On a year-to-date basis, the grocer is higher by 13% and is lagging behind the overall FTSE 100, which is higher by 18% YTD.  Although grocers have seen strong sales growth this year, fears about labour costs and price wars have hurt sentiment. Losing Qatar as a major investor is another blow to Sainsbury’s and it could also knock confidence towards the entire sector. Tesco and M&S are also lower today.

Bitcoin continues to recover

Once again, the pickup in Bitcoin is helping sentiment. It is back above $90,000 and is higher by $1,200 so far on Wednesday. Bitcoin has now retraced 23.6% of its move lower, which is the first major Fibonacci retracement level. The next resistance level to watch is $98,000. If Bitcoin can continue its recovery, then we may see some of the listed crypto-linked stocks pick up after a bruising month. The worst performers on the S&P 500 in the past 4 weeks include Super Micro Computer, Coinbase, Block and Trade Desk. If their fortunes change, then we could see a reshuffling in performance of the S&P 500 as we move through the final month of the year. Asian markets traded in tight ranges, the oil price is higher, although Brent has failed to break back above $63, and global sovereign bond yields are mostly stable.

Earnings revisions drive stocks, but last week’s powerful rally fails to gain traction

The main positive driver of US stocks this week is earnings revisions, with momentum and growth stocks having less of an impact, which is why the main US stock indices have not been able to maintain last week’s powerful rally. The S&P 500 remains close to its record high; however, it is trading sideways and is lacking direction. While we do not think that sentiment is fragile, we do think that the next move in stocks will be determined by some key US economic data releases, including the latest ADP private sector employment report and the ISM services sector survey later today.

Dollar weakens as it approaches key level

In the FX space, the dollar is broadly weaker on Wednesday and it is the worst performer across the G10 FX space. Even the Swiss franc is gaining vs. the USD and is higher by 0.2%, defying weaker than expected inflation. This adds to our view that the dollar is the  main story in FX as we end the year. The dollar index is at a crossroads, the 200-day sma is fast approaching at 99.57, if it can get above this level then it could give the dollar a boost into year end, after rising more than 3% since its September low.

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