Daily Economic Outlook: 5th October 2015

Today's economic data calendar is dominated by updates on the service sector.  In the euro area final readings for September PMI services data are expected to remain unchanged from already published 'flash' estimates. Those showed service sector activity still at relatively high levels. 

"In the U.K. a rise in the headline services PMI is expected. The unexpected fall in August, to a more than two year low, looks erratic given other indications that domestic demand remains relatively buoyant. Consequently, despite the weakness in both the U.K. PMI manufacturing index and our own Business Barometer, both of which are usually fairly highly correlated with the PMI services data, we forecast a rebound in the latter to 55.9 in September", says Lloyds bank. 

In the US, it seemed until now that sectors that are more exposed to domestic demand, such as services, were growing far more strongly than more internationally exposed sectors, most notably manufacturing. However, Friday's across-the-board weak employment report has called that into question.

Consequently today's ISM non-manufacturing index will be watched closely to see whether it confirms this pattern. The overall index seems likely to fall for the second successive month but that is primarily due to July's unsustainable rise. 

"If the level of activity is close to consensus expectations at 58.0 or our own higher forecast of 58.5 would still be consistent with very rapid growth in the sector", states Lloyds Bank. 

Despite continued concerns about the impact of weaker Chinese economic growth, the RBA looks unlikely to reduce interest rates at its policy meeting on Tuesday morning. Recent data has been mixed enough to cause the Board to wait on further developments.