There has been a notable shift back into the dollar in the past few days. The euro is feeling the pressure ahead of the ECB meeting on Thursday. Expectations of a 10 basis point cut to the deposit rate have been borderline, but a dovish shift to forward guidance is the expectation. Sterling is under pressure with Boris Johnson set to be confirmed as Prime Minister today. Boris comes with a harder “do or die” attitude to Brexit than Theresa May. Something that has dragged on sterling in the past couple of months since Mrs May announced that she was stepping down. Although the market is extremely short on sterling, but there are no signs of any technical rally yet. Furthermore, risk appetite has taken a bit of a shot in the arm again, with the announcement of a deal for the US debt ceiling has been reached, whilst face to face trade talks between the US and China are set to resume on Monday. With safe haven plays slipping back on this, the yen and gold have come back, Treasury yields have (at least at the long end of the curve) ticked higher and equities are finding support again. There could be further impact on risk appetite and yields today as the flash PMIs (forward looking growth indicators) are released for the Eurozone and US. Expect movement on the euro and US dollar to come today ahead of a more pensive look towards the ECB meeting tomorrow.
Wall Street closed solidly higher last night with the S&P 500 +0.7% at 3005, whilst US futures are just tempering these gains early this morning, around -0.1% lighter. Asian markets have moved higher overnight (Nikkei +0.4% and Shanghai Composite +0.6%). European indices are looking more cautious though, with the FTSE futures -0.2% and DAX futures all but flat. In forex majors, there is a mixed outlook for USD this morning, unwinding some of yesterday’s gains versus GBP and JPY, whilst performing better against the commodity currencies. AUD is the main underperformer on increased expectations of an RBA rate cut. In commodities, the slide on gold looks to be finding a degree of support, whilst oil continues to edge tentatively higher on a larger than expected API crude inventory drawdown.
The flash PMIs are a big focus for the economic calendar today. Eurozone readings come at 0900BST with the flash Eurozone Manufacturing PMI which is expected to remain steady at 47.6 (from 47.6 final reading in June). The final Eurozone Services PMI is expected to slip a shade to 53.3 (from 53.6 final reading of June) all of which will pull the final Eurozone Composite PMI back to an expected to slip to 52.1 (from 52.2 final in June). Into the US session , the flash US Manufacturing PMI is at 1445BST and is expected to improve slightly to 51.0 (from 50.6 as a final reading in June), with the flash US Services PMI expected to shade higher to 51.7 (from 51.5 final in June). The US New Home Sales are at 1500BST and are expected to improve by 6% in June to 660,000 (from 626,000 in May). Oil traders also will be keeping an eye on the EIA oil inventories at 1530BST which are expected to show crude oil stocks in drawdown of -4.2m barrels (-3.1m barrels last week).