July 23, 2024

“This week’s condensed calendar means a relatively quiet day today, but pressure is building ahead of a raft of events throughout the second half of the week. Tomorrow’s diary is intense, with PMIs due from the eurozone, UK, and US as well as a Bank of Canada rate decision and Federal Reserve speakers.”

Sam Cornford – Head of Trading

Main Headlines

Current US Vice President Kamala Harris has earned pledged support from enough Democratic delegates to secure the presidential domination, according to media estimates and a social media post by Harris herself. In only the first day of her campaign after Biden exited the race, donors contributed a record $81m in fundraising.

An ONS report yesterday showed that UK savings have surged since the pandemic and could persist, with households saving 11.1% of their income in Q1 this year, versus 5.8% in Q4 2019. Excluding the beginning of the pandemic, that is the highest rate since 2010. It also contrasts greatly with the US’ fall from around 7% to below 4% over the same period, which explains in part the rapid economic recovery across the Atlantic.

GBP

With few catalysts bouncing around in the early stages of the week, sterling is drifting sideways as markets await tomorrow’s PMIs. With the recent surge in positive sentiment surrounding the UK lifting sterling to a greater extent than movement in rate spreads would ordinarily suggest, stretched long positioning means some added risk of a sharper pullback if policymakers do decide to go ahead with a rate cut next week, with CFTC data displaying the highest volume of bullish bets on sterling by speculators since its records began in the late 80s.  That Bank of England decision next Thursday is the overarching focus for sterling, although tomorrow morning’s PMI survey data should give a good insight into how the growth picture will develop into Q3 and an upside surprise could be supportive for UK assets.

EUR

Economic activity levels are the main theme in the eurozone calendar over the next few days, beginning this afternoon with a consumer confidence figure. The survey has become gradually less pessimistic since mid-2022 and the consensus is for an improved print in July, although this is unlikely to shift the dial for the ECB. Tomorrow’s PMIs will be vastly more important, with markets expecting a modest recovery from June’s dip from 52.2 to 50.9, which had many paying more attention to the ECB’s warnings about downside growth risks.

USD

Domestic data was lacking yesterday and markets had seemingly anticipated the key political developments in the US, keeping the dollar relatively steady overall. There was some movement against the yen, which has gained around 0.5% ahead of a Bank of Japan meeting next week, while the Antipodean currencies (NZD, AUD) slipped lower as a surprise rate cut in China signalled a PBoC finally willing to sacrifice some strength in the yuan to boost growth. Much like everywhere else, the data calendar is dry today ahead of a condensed diary in the second half of the week. That means that existing home sales is the main piece of data, and it could be that the influence big US tech earnings on risk sentiment will be the bigger market mover. Pressure is building, however, and markets get the PMIs, Q2 GDP, and core PCE inflation thrown at them over the next three days.

Markets

Earnings season is in full swing and the Magnificent 7 begin their calls today with Tesla and Alphabet after the bell tonight. 74 of the S&P 500 had reported by Friday and so far earnings growth is looking likely to beat already sky-high expectations. The S&P 500 and Nasdaq both rose more than 1% yesterday as investors returned to tech after last week’s cool-off. A slight trim to the Trump trade saw the energy sector perform the worst through the session.

Main Economic Events (All Times CET)

4:00pm: Eurozone Consumer Confidence
4:00pm: US Existing Home Sales and Richmond Manufacturing Index

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