EU – ‘No basis’ for further Brexit talks.
UK services PMI’s strengthened to 51.4 for July, above the forecast and a 9 month high. New business recovered and export orders saw notable improvement. Confidence remained fragile in light of the political uncertainty and cost pressures remained high. The EU Commission restated that the Withdrawal Agreement was not open for re-negotiation (this isn’t cut and pasted everyday) and that it was moving towards accepting a ‘no-deal’ outcome as the likely outcome.
Negative Sterling sentiment persisted and “risk aversion” added to the negativity allowing the Euro to register 23-month highs of 1.0810. Retail sales data printed a poor 0.1% underlying increase in July BRC. Easing of risk conditions helped the Pound stabilise near 1.2150 on the Dollar and the Euro retreated to near 1.0845.
The ISM non-manufacturing index declined to 53.7 from 55.1 and well below consensus forecasts of 55.5. Business activity slowed sharply on the month and there was also a slowdown in new orders growth. Prices increased at a slower pace, although there was a faster pace of employment growth for the month. Trade fears dominated with increased fears over damage to the US economy from any escalation in the dispute.
There was a sharp shift in US Federal Reserve (Fed) Funds futures with the chances of a further cut in September seen to have increased to 40%. The dollar overall lost ground and the Euro pushed above 1.1200 while former Fed Presidents reiterated the need for independence. There were further Euro gains to 2-week highs near 1.1250 as fear intensified before a retreat to 1.1200 as the dollar regained some ground and fears eased marginally.
The Eurozone Sentix investor confidence index declined to -13.7 for July from -5.8 previously which was below consensus, the weakest reading and equalled the lowest reading for over six years which heightened unease over the current economic outlook.
German yields continued to decline during the day creating downward pressure across Eurozone bond market with the Dutch 30 year yield moving into negative territory for the first time. Despite lower German yields, there was a net narrowing of the US German yield spread which helped underpin the Euro. As writing, the Euro sits currently at 1.1210 against the Dollar.
Data to watch
14.30 – FOMC member Evans speaks
15.00 – JOLTS Job Openings
16.00 – FOMC member Bullard speaks