European Manufacturing Adds to Gloom

The European debt worries have failed to recede following downbeat manufacturing PMIs across the Eurozone and Moody’s lowering its outlook on Germany, the Netherlands and Luxembourg. With Greece managing to stave off a major crisis last month, today’s visit by the Troika officials to assess the nation’s commitment to fiscal targets would be keenly tracked. Meanwhile, the Chinese manufacturing PMI rising to a five month high for July provided some relief to traders. Today’s Spanish bond auction coupled with manufacturing data across the Atlantic are also likely to hog the spotlight. Back at home, markets stay focused on tomorrow’s crucial second quarter GDP data.

Pound Sterling – UK Markets

Sterling weakened against the US Dollar in yesterday’s trading session as investors flock to safe haven assets on deepening debt worries surrounding Spain and Greece. Additionally, Spain and Italy announced bans on short selling of financial stocks in order to discourage speculative trading. However, in today’s trading session, the Pound has moved marginally lower against the US Dollar and is trading almost flat against the Euro. The British Bankers’ Association report just released has revealed that mortgage approvals in the UK declined more than expected in June. With all the PMI readings out from the Eurozone, traders are expected to look forward to news flow from the Troika officials visit to Greece later today in order to gauge the risk sentiment. Moreover, market participants keenly await tomorrow’s second quarter GDP data in the UK which is expected to offer more hints over the state of the domestic economy.

US Dollar – US Markets

The US Dollar has moved higher against its major peers in today’s trading session as Eurozone debt concerns continued to fuel risk aversion among market participants. Data released earlier today indicating that the manufacturing activity in the Eurozone continued to contract for July further added to the gloom. However, worries over China’s growth prospects eased after the manufacturing PMI improved for July, highlighting the impact of easing measures undertaken by the Chinese central bank. In the midst of weakening domestic economic conditions, the Fed Governor, Sarah Bloom Raskin, indicated that the central bank would deliberate next week whether to initiate another large scale bond purchase programme to spur economic growth. On the macro front, the Richmond Fed manufacturing index due later today is expected to provide a clearer picture on the manufacturing front, as the New York and Philadelphia manufacturing indices released earlier offered mixed signals. Apart from Spain’s bond auction and news related to Troika officials visit to Greece, the house price data is also expected to garner some interest in today’s trading session.

Euro – European Markets

Yesterday, the Euro managed to hold above the 1.21 mark against the US Dollar after the IMF denied reports that it would halt further rescue aid to Greece. Meanwhile, worries over a potential Greek exit from the Eurozone and escalating Spanish woes prompted Moody’s to cut its credit rating outlook on Germany, the Netherlands and Luxembourg. In today’s trading session, the Euro has weakened against the US Dollar, as data released earlier today revealed that manufacturing activity across the Eurozone contracted for July. This comes on the back of dismal consumer confidence data in the Eurozone released yesterday. However, positive manufacturing data from China provided some respite to market participants. Against the backdrop of the recent aid sought by the Spanish regional governments, the nation’s bond auction scheduled later today is likely to be closely watched to gauge the risk appetite amongst investors. Additionally, the visit of the Troika officials to Athens is expected to provide hints over the stance that the region’s policymakers might take in case of Greece’s failure to meet its debt reduction targets.

Other Currencies – Highlights

The Australian Dollar is trading higher against the US Dollar this morning on hopes of a recovery in the Chinese economy after data revealed an improvement in the Chinese PMI for July. Moreover, the Reserve Bank of Australia Governor, Glenn Stevens, opined that the domestic economy was becoming strong enough to cope with global economic concerns arising from the Eurozone debt crisis or a slowdown in China. The positive comment from the Governor has boosted speculation that the central bank might avoid pursuing fresh easing measures in the near future. Meanwhile, news flow from Troika officials visit to Greece and bond auction in Spain are expected to play a critical role in determining the trend in today’s trading session. Additionally, markets await the consumer price inflation data for the second quarter scheduled for release tomorrow.