Another Trade Truce

Presidents Trump & Xi agree an open-ended trade truce boosting risk sentiment as July begins with a busy economic calendar.

Previous Day's Market Highlights

Markets remained in a hesitant mood on Friday, ahead of crunch trade talks between Presidents Xi and Trump, resulting in muted volatility despite a heavy data calendar. From the US, the core PCE price index, the Fed’s preferred measure of inflation, increased at 1.6% YoY in May, in line with expectations, though below the Fed’s 2% target for a 4th consecutive month, further evidencing the benign pace of price increases. Other US data painted a mixed picture. Final consumer sentiment figures from the University of Michigan, the most widely-used gauge, were revised up to 98.2, showing the consumer remains resilient despite significant economic headwinds. However, PMI figures for the Chicago region, a useful representation of the US as a whole, fell to 49.7, the first contraction in 2-and-a-half years. With data releases offsetting each other, and investors remaining on the sidelines, the dollar closed Friday 0.1% lower against a basket of peers. 
Elsewhere, inflation was also in focus in the eurozone, with June’s flash CPI figures remaining sluggish and significantly below the ECB’s target. Headline CPI increased by 1.2% on a year-on-year basis, as expected, while core CPI increased at a modestly above-forecast 1.1% YoY. Despite the modest uptick in core inflation, the chances of additional ECB stimulus remain high due to continuing economic fragilities, resulting in the euro closing unchanged. The pound also held steady, ticking up by around 0.1% against both the euro and dollar, after first quarter GDP growth was confirmed at 1.8% on a year-on-year basis. Friday’s only other notable releases were from Canada, where GDP increased by a better than expected 0.3% in April, and the BoC’s quarterly business outlook survey painted an upbeat picture. The survey pointed to a sales boost in the coming quarters, along with an increase in economic activity, factors which should see the BoC retain their neutral policy stance. Both releases helped the loonie to gain around 0.1% over the course of the day. 
Over the weekend, the crunch meeting between President Trump and President Xi has resulted in the agreement of a further trade truce. The truce appears open-ended, with trade talks between the US and China set to restart and the US pledging not to levy new tariffs on Chinese goods. The outcome is largely as expected, and as positive as the market could have hoped for. This has resulted in a risk-on feel this morning, with the risk-sensitive antipodeans (AUD & NZD) and US dollar rallying. However, it will be interesting to see what impact the truce has for the Federal Reserve, with markets continuing to price in policy easing.

Finally, turning back to Friday, equity markets recorded solid gains to round out a bumper 1st half of 2019. In Europe, the pan-continental Stoxx 600 added 0.7%, while the US benchmark S&P 500 added 0.6% - the latter ending the first 6 months of the year with a gain of 17%, the best performance since 1997.


Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1190 1.1331 1.1120 1.86%
GBP/USD 1.2675 1.2784 1.2506 2.17%
EUR/USD 1.1330 1.1412 1.1181 2.02%
GBP/AUD 1.8125 1.8422 1.8032 2.12%
GBP/NZD 1.8930 1.9414 1.8867 2.82%
GBP/CAD 1.6605 1.7068 1.6568 2.93%

Today's Market Highlights

A fresh month begins today with the usual round of manufacturing PMI surveys from most major global economies. The figures, reporting data for June, are expected to show a continued, global, slowdown in the sector, likely providing further evidence of divergence from the relatively strong performance in the services sector. Kicking things off will be final data from the eurozone, expected to remain unchanged from the flash estimate, at 47.8, confirming a 5th consecutive month of contraction in the sector. Shortly after, PMI figures from the UK are set to show the manufacturing sector remaining in contraction for a 2nd consecutive month, adding further support to expectations of economic stagnation in Q2. Rounding out the day’s PMI releases will be the ISM manufacturing survey from the US, expected to fall to a near 3-year low at 51.0. However, risks for the survey appear biased to the downside, with a dip below 50.0 into contractionary territory likely, bearing in mind the recent downside surprises seen in a number of regional Federal Reserve manufacturing surveys. 
Away from PMI surveys, Monday’s only other notable release will be unemployment data from the eurozone, expected to show the unemployment rate holding steady at 7.6% - the lowest level since August 2008. Overnight, attention will shift to the Reserve Bank of Australia’s (RBA) latest policy decision. After announcing a 25bps rate cut at their last policy meeting, further dovish rhetoric is likely this time around due to continued sluggish inflation and an upward trend in unemployment. Markets price around a 70% chance of a further rate cut overnight, however an August cut appears more likely once policymakers have had a chance to digest inflation figures for Q2. RBA Governor Lowe’s speech on Tuesday morning will also be closely watched for any comments on monetary policy. 
Looking ahead to the remainder of the week, the data calendar remains busy. Friday’s US labour market report is the week’s main highlight, with focus falling on further signs of labour market tightness, especially wage growth, as the chances of an imminent Fed rate cut remain high. Other notable releases include services PMI figures from most major global economies, retail sales releases from Australia and the eurozone as well as Friday’s Canadian labour market data. Attention will also fall on this week’s OPEC meeting, with discussions likely to take place over extending current production cuts. The week is also littered with public holidays, with Canadian markets closed on Monday, and US markets closed on Thursday for Independence Day. 

Today's Economic Calendar

Time Currency Release Consensus Previous
9:00am EUR Manufacturing PMI (Final - Jun) 47.8 47.8
9:30am GBP Manufacturing PMI (Jun) 49.2 49.4
10:00am EUR Unemployment Rate (May) 7.6% 7.6%
3:00pm USD ISM Manufacturing PMI (Jun) 51.0 52.1
5:30am (Tues) AUD RBA Rate Decision 1.6% 1.6%