Global Service Sector Snapshot – Paxforex

On Monday trader’s received plenty of report on the global manufacturing sector which overall came in much better than expected and some traders were hopefully that the more important service sector would follow suit and beat expectations as well. Manufacturing in many developed countries only accounts for roughly one-third of economic output while the service sector accounts for two-thirds.

In a perfect economic scenario both sectors perform strong which would translate into positive GDP data. While Monday’s manufacturing reports offered encouraging signs today’s service sector data painted a different economic picture which was mixed at best.

Data our of China points towards expansion, but at a lower rate which means that the trend is going the wrong way; Australian data shows a contraction in their service sector and a reason for concern at least in the short-term. Australia’s service sector contraction already shows up in their GDP data which has also missed expectation today and caused a sell-off in the Australian Dollar.

The situation does not look better on the European continent where the overall Eurozone Service PMI came in stronger than expected, but the strength in the Eurozone is isolated to Germany while France and Italy shoed bigger than expected contraction. Outside the Eurozone the UK showed expansion, but at a much lower than expected rate and just like China the data is heading in the wrong direction.

Rounding up the service sector disappointments today was the US which reported that the ISM Non-Manufacturing Index came in much lower than expected while it still shows an expansion. The actual figure did not only miss expectations, but came in lower than the previous report which is a very troubling development.

Forex traders will look forward to the US Fed Beige Book which is due for release in less than 60 minutes in order to get confirmation on quantitative easing. Given the mixed reports on manufacturing and the service sector the Beige Book is likely to confirm a rather overall weak economy.

Written by Paxforex