Previous Day's Market Highlights
Sterling declined on Tuesday as both disappointing construction PMI figures and pessimistic comments from Bank of England (BoE) Governor Carney exerted downward pressure on the pound. Firstly, PMI data painted a bleak picture of the construction sector, with the index recording a 6 point fall to 43.1, the lowest level in over a decade, as political uncertainties resulted in weaker demand for work. Meanwhile, BoE Governor Carney’s afternoon speech struck a more cautious tone than seen previously, with Carney flagging increased downside economic risks due to both ongoing trade tensions and a potential no-deal Brexit. While this is nothing new or pertinent, Carney’s comments that BoE policymakers will make a detailed assessment in August of the current ‘global sea change’, along with comments that uncertainties may warrant a near-term policy response, has seen markets almost double the chances of a BoE rate cut this year, with a 25bps reduction now a 49% chance. This coming despite Carney reiterating the need for ‘gradual and limited’ rate increases in the case of an orderly Brexit. Over the course of the day, sterling lost 0.3% against the dollar, falling to a 2-week low, while shedding 0.35% against the euro.
Elsewhere, the common currency held steady, despite softer than expected producer price inflation figures, with PPI increasing by just 1.6% YoY in May, the slowest pace in almost 18 months. While the immediate market impact was limited, the sluggish pace of price increases may feed through into more benign CPI in the coming quarters. Also of note from the eurozone is the nomination of IMF Managing Director Christine Lagarde to succeed Mario Draghi as ECB President at the end of October. Lagarde’s monetary policy views are as yet unknown. Turning to the dollar, the greenback recorded its first daily loss in a week, shedding 0.1% against a basket of peers as markets continued to digest the US-China trade truce amid a lack of economic data releases.
Tuesday’s major mover was the Australian dollar, which gained 0.35% after less-dovish than expected comments from the Reserve Bank of Australia. Despite announcing a 2nd 25bps rate cut in as many months, the RBA removed any explicit mention of further policy easing. Governor Lowe reiterated this message in a speech after the decision, stating that the RBA are prepare to adjust rates if needed, suggesting that further rate cuts are likely to be data dependent and likely to hinge on how the economic outlook develops. Other commodity currencies were more subdued, the Canadian dollar added 0.2%, despite PMI data showing a 3rd consecutive contraction in the manufacturing sector, while the New Zealand dollar traded flat.
Away from FX, European equity markets gained, the pan-continental Stoxx 600 adding 0.4%, as risk appetite remained healthy after the US-China trade relations continued to thaw after the G20 summit. In the US, the benchmark S&P 500 added 0.3%, closing at a record high for the second consecutive day. Finally, oil prices lost significant ground as demand worries exerted downward pressure, despite OPEC agreeing to extend current production cuts for a further 9 months. Both Brent and WTI lost more than 4%.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
Today sees a busy economic calendar, with services PMI figures the main order of business for markets. From the eurozone, June’s services PMI is set to be confirmed at 53.4, unchanged from the flash estimate and representing a solid pace of expansion. Such a reading would also confirm the continued divergence between the services and manufacturing sectors, with the latter having contracted for a 5th consecutive month in June. In the UK, services PMI is set to remain at 51.0 for a second month in a row, with the UK’s largest economic sector partially compensating for continued weakness in the construction and manufacturing industries. Wednesday’s final PMI number comes from the US, with the ISM non-manufacturing gauge set to have fallen to 55.9 in June. However, such a rate of expansion would continue to show the US economy outpacing global peers, though a downside surprise would likely see markets further increase their bets on looser monetary policy.
Staying with the US, the economic calendar is packed, with a number of releases coming a day earlier than usual due to tomorrow’s Independence Day holiday. The labour market will be in focus, with ADP employment change and weekly jobless claims figures due. The former is expected to show the US economy added around 140,000 jobs last month, though the correlation with Friday’s official labour market report is doubtful at best. Meanwhile, weekly claims are set to remain broadly in line with the 4-week average of 222,000. Other lower-tier US releases include May’s trade balance, factory orders and final durable goods orders figures.
Finally, a couple of Bank of England policymakers are due to speak, with any cautious comments, in a similar vein to Governor Carney likely to exert downward pressure on the pound. Markets will hear from typically dovish MPC member Cunliffe in addition to Deputy Governor Broadebent, the latter one of the names mooted to replace Carney as Governor in January.
Today's Economic Calendar
|9:00am||EUR||Services PMI (Jun)||53.4||53.4|
|9:30am||GBP||Services PMI (Jun)||51.0||51.0|
|1:15pm||USD||ADP Employment Change (Jun)||140k||27k|
|1:30pm||USD||Weekly Jobless Claims (Jun 28)||223k||227k|
|3:00pm||USD||ISM Non-Manufacturing PMI (Jun)||55.9||56.9|