Heat Wave Encourages Growth

The PMI data from Europe released earlier today suggested that a slowdown in the region’s manufacturing and services sector is probably bottoming out, with the German and the Euro zone manufacturing activity moving into the expansionary phase for July. However, the latest HSBC manufacturing PMI report in China highlighted threat of the nation’s economic growth slowing further in the coming quarters. At home, with the latest set of economic indicators revealing strong signs of an economic revival taking effect, today’s industrial trend survey will be watched closely for gauging the recovery momentum in the initial phase of the third quarter. Besides, manufacturing PMI and new home sales data from the US later today will attract market focus.

Pound Sterling – UK Markets

In yesterday’s subdued trading session, the Pound remained range bound against both the Euro and the US Dollar. The BBA’s mortgage approvals report released yesterday revealed that loans for house purchases in the UK rose at a slower than expected pace for June but still climbed to the highest level since February 2012. The recent spate of positive housing data continued to signal that the fiscal and monetary policy steps administered by policymakers to support the sector are yielding results. Amid a lack of domestic triggers, the Pound is finding it difficult to gain traction in today’s trading session. With the recent UK manufacturing sector data showing steady signs of growth in June, today’s CBI trend survey will be closely eyed for further insights into the state of industrial activity in the UK. However, most of the market attention is focused on tomorrow’s GDP data in Britain which is likely to support the recent spate of positive economic releases and show a faster pace of expansion for the second quarter.

US Dollar – US Markets

Following below par economic data on Monday, yesterday’s house price and Richmond Fed manufacturing data also disappointed investors, leading the US Dollar to limit its upside against the majors on the back of dwindling hopes of the Fed tapering its stimulus measures in the near term. The greenback has continued to trade on a weaker footing in today’s trading session in the midst of receding fears surrounding the European economy following upbeat manufacturing and services PMIs in France and Germany. This is in sharp contrast to the weak manufacturing Chinese data released earlier today. With the health of the global manufacturing activity confounding traders, the US manufacturing PMI for July scheduled later today will be keenly eyed for more clarity on the overall manufacturing activity in the country and initial insights into the third quarter performance. Also, the new home sales report later in the day will be eyed, as the recent mixed housing data has raised questions over the state of the recovery in the US housing sector.

Euro – European Markets

Upbeat Euro zone consumer confidence data for July led the single currency to stage a recovery and breach the 1.32 mark against the US Dollar yesterday. To add to the upside, the Bank of Spain estimated that the nation’s GDP shrank 0.1% for the second quarter, recording the smallest drop since 2011. Moreover, during a radio interview, French Finance Minister, Pierre Moscovici, indicated that the nation is “out of recession”, on back of yesterday’s upbeat industrial data and on forecast from the Bank of France and INSEE that the nation’s GDP will grow by 0.2% in the second quarter. Providing a further boost to investors risk appetite, data released today morning has shown a greater-than-expected improvement in the flash manufacturing and services PMIs across Europe, leading the Euro to move higher versus the Pound and the US Dollar. Today’s upbeat data validates an improvement in economy, keeping hopes of a recovery in the Euro zone alive. Going further, the Ifo sentiment indices scheduled tomorrow will be on radar. Besides, news flows emanating from the US later today is expected to influence risk appetite in the day ahead.

Other Currencies – Highlights

The Aussie Dollar notched up some gains versus the greenback yesterday, as dismal US economic releases helped to ease concerns surrounding the US Federal Reserve’s intensions of withdrawing its bond buying programme. However, the Australian Dollar has reversed most its gains against its US counterpart this morning after the HSBC flash manufacturing PMI for China unexpectedly touched an 11-month low in July, raising grave concerns over the health of the Chinese economy and its repercussions on the growth outlook for Australia. Additionally, data showed that annual consumer price inflation in Australia eased for the second quarter of 2013, providing room to the Reserve Bank of Australia to cuts interest rates further in its next policy meeting, if required. In the absence of domestic economic news until next week, markets are expected to keep a tab on news flows emanating from global markets for further cues to the Australian Dollar in the week ahead.