BOE intervention crucial for government support
CBI industrial orders nudged up slightly to -58 for June from -62 previously but failed to meet expectations of -50. Output dropped at the fastest pace on record in the three months to June and export orders also hit a record low; overall confidence remained weak.
The IHS Markit household finance index improved to 40.7 in June but remains well below pre-coronavirus levels. Confidence in job prospects also remained very weak despite modest improvement this month as workplace activity continued to decline.
Bank of England Governor Andrew Bailey stated that the financial dislocation in March was much more serious than the 2008/09 crash and that the government would have found it very difficult to finance itself had the Bank not intervened. Sterling made limited gains on the Euro, moving up to 1.1062 but significant net gains pushed the Dollar back up to the 1.2470 area. With a slightly more defensive risk tone the Pound has edged this morning ahead of the latest business confidence data.
The Chicago Fed National Activity index recovered strongly to 2.61 for May from -17.89 in April with a 3-month average at -6.65 from -7.50 previously. All four categories were in positive territory for the month with employment making the strongest contribution as payrolls rebounded strongly.
The dollar overall lost ground after yesterday afternoon and the US currency was unable to regain ground later as commodity currencies also posted strong gains on the day. The Euro held a firm tone on Tuesday and traded just above the 1.1250 level against the dollar ahead of the latest business survey data.
Markets will continue to monitor developments around the proposed EU recovery fund with French President Macron scheduled to meet Dutch Prime Minister Rutte on Today. Positive rhetoric will underpin Euro strength while an abrasive tone would unsettle confidence.
In its monthly report, the Bundesbank stated that it expects the German economy to contract close to 10% for the second quarter. The German government fiscal stimulus plan will improve business and consumer sentiment, although this will not have an impact this quarter. The construction sector had withstood the pandemic for the most part with Inflation turning negative from July until year-end before turning positive again in 2021 as base effects turned positive.
The Euro holds firm this morning and trades just above the 1.1255 level against the Dollar ahead of the latest business survey data whilst Euro-zone PMI releases are expected to register a notable improvement for June.
Data to watch
08:30 – EUR – German Flash Manufacturing PMI
08:30 – EUR – German Flash Services PMI
09:00 – EUR – Flash Manufacturing PMI
09:00 – EUR – Flash Services PMI
09:30 – GBP – Flash Manufacturing PMI
09:30 – GBP – Flash Services PMI
09:45 – GBP – BOE Gov Bailey Speaks
14:45 – USD – Flash Manufacturing PMI