July 24, 2024

“The data diary kicks into high gear today, with PMIs to come for the UK, eurozone, and US ahead of a rate decision from the Bank of Canada and a couple of Federal Reserve speakers.”

Tim Hallinan – Trading Director

 

Main Headlines

A tumultuous period in US politics is keeping markets on edge. Trump is back on the campaign trail today with a rally in North Carolina, after the US Secret Service Director resigned yesterday due to failings leading to the assassination attempt in Pennsylvania. And only a few days after Biden dropped out of the race, a Reuters/Ipsos poll released yesterday has shown Kamala Harris at a 44-42 lead already, although most bookmakers still favour a Trump win.

In further bad news for the new government managing the UK’s public finances, the National Audit Office said in a report yesterday that the NHS faces challenges that are at an unprecedented scale, owing to rising demand, backlogs, and issues hiring workers. Prime Minister Keir Starmer also experienced his first MP rebellion yesterday, with several Labour members voted against the party in a vote on a two-child benefits limit.

GBP

Sterling was one of the top performers in the G10 yesterday, merely because it held up better than most against a rising dollar. The PMIs today are expected to recover slightly for both manufacturing and services, the latter of which took a hit from election uncertainty in June and is expected to firm up this time. The composite figure peaked at 54.1 in April but fell to 52.3 last month, and the consensus for today is eyeing a 52.6 print. The PMIs are a survey-based measure of economic activity and are watched primarily for their predictive power for GDP. So far this year growth has been ticking along at a healthy pace, and it’s one of the reasons why sterling has outperformed the rest of the G10.

EUR

Euro price action broke to the downside versus the dollar yesterday, mirroring moves among many of its peers. An uptick in consumer confidence on rising real wages came as expected in a data-light day yesterday, and the focus swings to the PMIs this morning. Results have been disappointing so far, with France managing an above-50 print in the services sector but slipping the furthest into contractionary territory in manufacturing since January. Both indexes fell short of expectations in Germany, particularly in the manufacturing sector that has been mired by poor performance and sluggish demand for over two years now. We’ll get the consolidated eurozone-wide figure this morning.

Elsewhere in Europe, it’s worth highlighting the recent poor performance in the Nordics – EUR/NOK is now around its highest levels since November, having risen 6% in one month, and the equivalent move in EUR/SEK is around 4%. NOK and SEK have suffered heavily from inflation undershoots, dovish rate path repricings, and market nerves.

USD

The dollar broadly surged higher yesterday, with its most notable gains coming against the more risk-sensitive end of the spectrum, including the Antipodeans (AUD, NZD) and the Nordics (NOK, SEK). It is clearly a move based on a shift away from riskier currencies, and election uncertainty in the US is an obvious factor in this dynamic. Among an assassination attempt on Trump, Biden dropping out, and Harris gaining Democratic support in quick succession, it’s hard to know which way to turn for investors. Today we get the US S&P PMIs, which are currently painting a much brighter picture of the US economy and consumer demand than the ISM version of the survey – looking at the services sector, S&P put it at a one-year high in terms of the pace of expansion last month, whilst the ISM survey fell to a four-year low. That should keep traders slightly cautious in reading too far into the result, which is expected to cool slightly. Tomorrow’s GDP figure and Friday’s core PCE are likely to be more significant for the Fed’s rate path, and that is still what dominates for the dollar.

In Canada, the BoC is widely expected to decide on a back-to-back 25bps rate cut. Inflation is back on track, with all the CPI variants within the 1-3% tolerance band, jobs growth is becoming more consistently negative, unemployment is rising at a decent pace, and per capita GDP is contracting – the Canadian economy is in desperate need of a boost.

Markets

Now that the stock markets ‘fear gauge’ – the VIX – has eased from its election-related two-month high to 14.5, it’s earnings guiding the major indexes. In the US, Alphabet and Tesla both beat revenue estimates but, with the bar high for further strength in Alphabet and Tesla’s profit sinking 45%, both stocks fell. In Europe, a further 14% decline in sales for LVMH’s brands in Asia ex-Japan hit luxury stocks, while the focus moves to the bank sector today, with the likes of BNP Paribas, Santander, Deutsche, and UniCredit all reporting today.

Main Economic Events (All Times CET)

9:15am: French Flash PMIs
9:30am: German Flash PMIs
10:00am: Eurozone Flash PMIs
10:30am: UK Flash PMIs
3:45pm: Bank of Canada Rate Decision
3:45pm: US Flash PMIs

 

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