Previous Day's Market Highlights
46 days after Theresa May's resignation, and after 40-odd years of ambition, Boris Johnson was, on Tuesday, announced as the next Conservative Party leader and the UK's next Prime Minister, after winning 66% of the Tory Party vote. However, the result announcement had little immediate impact on the pound, with the market having priced in such an outcome, and a degree of 'Boris risk', over the last month. Hence, focus will quickly shift to what comes next - Cabinet appointments and the plan for Brexit. The first Cabinet appointments should be made today, after Boris becomes PM this afternoon, at which point it will become clear whether Boris is surrounding himself with 'hard' Brexiteers, or creating more of a mix of views. On Brexit, markets will be looking for clarity on the Brexit plan, with sterling set to remain under pressure should the 'do or die' Halloween Brexit rhetoric continue. A first flavour or Boris's plan came in his acceptance speech, pledging to "deliver, unite, defeat, energise: D.U.D.E". However, despite the chances of a no deal Brexit modestly increasing, Parliament remain likely to block such an outcome. For the pound, price action remained within a familiar range. Sterling dipped around 0.25% against a stronger dollar, a 3rd consecutive day of declines, while recording a gain of 0.2% against the euro, briefly hitting the highest level since early-July.
While sterling was subdued, the dollar continued its recent march higher, hitting its highest levels since mid-June against a basket of peers. While there was no clear catalyst for the greenback's strength, the move can likely be put down to a combination of rising yields as markets price out a 50bps July rate cut, reports of US officials visiting China for trade talks helping risk sentiment and the announcement of a bipartisan deal being struck to increase the debt limit. The rally came despite a number of softer than expected economic releases, including house prices increasing by just 0.1% MoM in May, the slowest pace in over 2 years, as well as manufacturing activity figures from the Richmond Fed falling to -12 in July, the lowest level since January 2013.
The dollar's advance resulted in the euro struggling to find support, the situation exacerbated by market participants treading cautiously ahead of Thursday's ECB policy decision. The common currency shed 0.5% against the dollar over the course of the day, hitting a near 2-month low and recording its biggest daily loss since the start of the month. Elsewhere, the Kiwi dollar was Tuesday's worst performing major, losing just over 0.5% after reports the RBNZ were examining unconventional monetary policy tools should rates reach the zero lower bound. While just research at present, markets took this as a sign of possible looser policy on the way.
In other markets, equities on both sides of the Atlantic rallied, buoyed by relatively strong corporate earnings and reports of US negotiators heading to China for trade negotiations next week. In Europe, the pan-continental Stoxx 600 closed 1.15% higher, while the US benchmark S&P 500 gained a shade under 0.7%. Finally, oil prices continued to gain ground on Tuesday as lingering Middle East tensions resulted in continued concerns over supply. Both global benchmark Brent and US WTI crude settled more than 0.9% higher.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
Today's main data release comes from the eurozone, in the shape of July's flash PMI figures. Data is expected to show the outlook for the manufacturing industry remaining bleak, with the sector set to have contracted for a 6th consecutive month. Markets expect the PMI to remain unchanged at 47.6, well below the key 50.0 divide between expansion and contraction. On a more optimistic note, the services sector is expected to continue its recent solid pace of expansion, albeit at a slightly more modest pace, with the PMI set to dip to 53.3, from last month's 53.6. Meanwhile, the composite PMI figure, which provides an activity gauge for both sectors, is expected to remain basically unchanged at 52.1 - exemplifying both the weak economic momentum across the bloc and the continued divergence between the two sectors. While markets will likely be keeping one eye on tomorrow's ECB policy decision, a poor set of PMI figures may increase the chances of Draghi & Co. surprising markets by announcing further stimulus tomorrow, thus weakening the single currency.
Elsewhere, data is relatively limited. From the UK, while the economic calendar is barren, focus will remain on political developments as Boris Johnson officially becomes Prime Minister (more above). Meanwhile, from the US, today's only notable release is June's new home sales figures, expected to fall to the lowest level since January, showing just 660,000 new homes sold last month.
Central bank speakers are also lacking, with the ECB and FOMC remaining in their pre-meeting 'blackout' periods. No speakers are due throughout either the European or North American sessions, though remarks from RBA Governor Lowe will be closely watched overnight.
Today's Economic Calendar
|9:00am||EUR||Manufacturing PMI (Flash - Jul)||47.6||47.6|
|9:00am||EUR||Services PMI (Flash - Jul)||53.3||53.6|
|9:00am||EUR||Composite PMI (Flash - Jul)||52.1||52.2|
|3:00pm||USD||New Home Sales (MoM - Jun)||0.66mln||0.626mln|