What’s been happening?

Pound Sterling – UK Markets 

Boris Johnson has won the Conservative Party leadership race receiving 92,513 of Tory votes vs Jeremy Hunt’s 46,566 and became the new Prime Minister of the United Kingdom in a widely expected outcome. Although the initial market reaction helped the British pound gather strength against its rivals, it struggled to preserve its momentum as investors are now shifting their focus to the possibility of a no-deal Brexit outcome.

Speaking to lawmakers after becoming the new PM, Boris Johnson said that they must be out of the EU by October 31. Responding to the outcome, "We look forward to working constructively with PM Boris Johnson when he takes office, to facilitate the ratification of the withdrawal agreement and achieve an orderly Brexit," European Union (EU) chief Brexit negotiator Michel Barnier tweeted out.

Meanwhile,  the Confederation of British Industry in its latest Industrial Trends Survey said that the optimism in the manufacturing sector deteriorated at its fastest pace in three years with new orders falling sharply. “As the tailwind from stockpiling weakens, clouds are gathering above the manufacturing sector. It’s being hit by the double-blow of Brexit uncertainty and slower global growth,” Rain Newton-Smith, the CBI’s Chief Economist, said. “With orders, employment, investment, output and business optimism all deteriorating among manufacturers, it’s crucial for the new Prime Minister to secure a Brexit deal ahead of the October deadline.”

US Dollar – US Markets

Despite a batch of mixed macroeconomic data releases from the United States, the dollar continued to outperform its rivals and the US Dollar Index extended its rally into the third straight day. The 10-year US Treasury bond yield rose nearly 1.5% on Tuesday to provide the primary boost to the greenback. Confirmation of the US Treasury Secretary Mnuchin and Trade Representative Lighthizer travelling to China on Monday for a fresh round of face-to-face trade negotiations helped the market sentiment improve and fueled the yields’ advance.

The Philly Fed’s Non-Manufacturing Index improved to rose to 21.4 in July from 8.2 in June. “The indicators for firm-level general activity, sales/revenues, and new orders all rose, while the full-time employment index moderated slightly,” the publication read. “Overall, the respondents continue to expect growth over the next six months at their firms and in the region.” However, other data showed that existing home sales in the U.S. declined by 1.7% on a monthly basis in June and the Richmond Fed Manufacturing Index slumped to -12 in July to miss the market expectation of 5. 

Euro – European Markets

The shared currency suffered losses against both the dollar and the pound sterling on Tuesday as investors continue to price a dovish shift in the European Central Bank’s monetary policy outlook at this week’s meeting. Citing ECBWATCH, Reuters reported that money markets are now pricing in less than 40% chance of a 10 bps European Central Bank (ECB) rate cut on Thursday. The only data from the euro area on Tuesday revealed that the consumer confidence is expected to improve modestly with the European Commission’s Consumer Confidence Index rising to -6.6 in July’s advanced reading from -7.2 in June. 

What’s coming up? 

UK: The BBA mortgage approvals will be the only data featured in the UK economic docket on Wednesday.

US: The IHS Markit will release the preliminary Manufacturing, Services, and Composite PMI figures. The US Census Bureau will release the new home sales figures as well.

EU: The IHS Markit will publish the Manufacturing and Services PMI reports for the euro area, Germany, and France on Wednesday. The ECB will release M3 money supply numbers.