European Outlook: Asian stock markets traded narrowly mixed overnight, with investors eying U.S. politics and jobs data. Hong Kong posted gains, after better than expected profits from Suzuki Motor Corp. While Commonwealth Bank of Australia weighed on the Asian index after accusations of a breach of money laundering laws. Oil prices are slightly down on the day and below the USD 49 per barrel mark. FTSE 100 futures are down, after the BoE induced rally yesterday, while U.S. futures are narrowly mixed. The BoE announcement, which saw a lower number of dissenters and downward revisions to growth and inflation forecasts saw European yields heading south, led by a sharp drop in the Gilt, but the BoE maintained its tightening bias and warned that little more growth may be needed to prompt a rate hike. So not as dovish a message as headlines suggested and there could be a correction along the line. Deputy BOE Governor has reiterated the MPC’s position on the BBC this morning. Cable 1.3140, EURGBP 0.9040 (39 week highs).
German manufacturing orders stronger than expected: Orders rose 1.0% m/m, while May was revised up slightly to 1.1% m/m from 1.0% m/m. The annual rate jumped to 5.2% y/y from 3.9% y/y. Expectations had been for a more muted uptick and the stronger than expected number at Domestic capital goods orders, a gauge for future investment, rebounded strongly from a drop in May and were up 7.5% m/m. Overall domestic orders rose 5.1% m/m, after falling in the previous month, while foreign orders inflow remains volatile on a monthly basis and fell -2.0% m/m, after rising 2.2% m/m. With most of the decline due to a drop in orders from other Eurozone countries, the strong EUR is not to blame, however.
FX Update: The dollar majors have been plying narrow ranges for the most part. EUR-USD held in the upper 1.18s, below the 31-month high logged midweek at 1.1910, and Cable settled in the mid 1.31s, consolidating the sharp losses seen yesterday in the wake of the BoE’s guidance yesterday, which largely kicked expectations for a 25 bp rate hike into 2018. USD-JPY’s downtrend re-asserted, with the pair logging a new six-week low at 109.84 during the Tokyo session, which by our data surpassed the low seen in late New York trade yesterday by 1 pip. Japanese data today included a big miss in June wages data, but, as is often the case, to little impact on the yen. AUD-USD remained buoyant, despite the RBA’s SMP noting that a further exchange rate appreciation would lower both economic growth and inflation, though Australian June retail sales beat expectations, rising 0.3% m/m. Market participants have been hunkered down ahead of today’s U.S. July payrolls release.
Main Macro Events Today
- US Employment – July employment data should post a 185k (median 182k) headline following a 222k headline in June and 152k in May. There is still upside risk to the report from the strength in the mining and factory sectors that’s also shown up in firm producer sentiment figures during the first half of the year. The tight ADP number on Wednesday offers caution to the upside risk.
- Canadian Employment – It is expected to rise 25k in July after the 45.2k gain in June. Canada employment has been on an uptrend since August of last year as the economy expands. Expectations are for an annual average weekly earnings growth to expand at a 1.3% y/y pace in July, matching the 1.3% growth rates in May and June. While that would again be above the multi-year low 0.7% pace in April, it would still leave a historically tame pace for compensation growth. The unemployment rate is expected at 6.5% in July, matching June.
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