Daily Insight

Without doubt, the most significant event this week will take place at midday when the European Central Bank announce their latest stance on euro-zone interest rates and it is widely anticipated that the ECB will continue to adopt a more measured, cautious approach this month despite six members of the governing council publicly giving their backing to a more aggressive tightening of rates. However, the chairman of the Central bank, Jean-Claude Trichet, has thus far resisted giving his own opinions on euro-zone growth and the need to raise interest rates, which has left investors speculating that the ECB will keep rates on hold at 2.75%. Therefore, the accompanying press conference takes on added significance as the market looks for direction over future monetary policy and if Trichet indicates the need for a pick-up in the pace of interest rate rises, the Euro will undoubtedly strengthen against the Pound, pushing back under 1.4400. There was some significant data released yesterday in the euro-zone ahead of today's announcement with European service industries expanding by the most in six years in June according to the Purchasing Manager's Index. Elsewhere, Retail Sales unexpectedly declined in the figures for May, dropping 0.6% from April despite a predicted pick up in sales thanks largely to the staging of the World Cup.

The Pound has been struggling in the build up to the Bank of England rate announcement today where the MPC are widely expected to hold UK interest rates at 4.50% for the eleventh month in succession as the BoE await a firm pick-up in consumer sentiment. Since the untimely death of David Walton, who was the sole voice for a rise in rates for the past two months, the market has lacked a little direction will regard UK interest rates and it will be interesting to see how the committee voted when the minutes of the meeting are released next week. There has been a sharp pick-up in the manufacturing and service sectors in recent months and that sentiment has been reaffirmed this week with PMI Services remaining at a high level in the data released yesterday. The figure was slightly under expectations but was still positive for the service-dependent UK economy, coming in at 58.7 down from 59.2 in May. In addition to the BoE rate announcement, there is some significant data released in the UK this morning with Industrial Production expected to show modest gains in May while manufacturing output looks set to jump by 0.1%.

The Dollar made significant gains against the Pound yesterday amid the release of the ADP National Employment report, which acts as an insight into Nonfarm Payrolls released on Friday this week and doesn't normally have too much influence on the Dollar's status. However, the report estimated that the economy added an amazing 368,000 jobs in June and provides further evidence that the U.S labour market is continuing to show signs of robust growth in the second quarter. As a result, the Dollar strengthened against Sterling and closed well underneath 1.8400 last night with U.S Factory Orders also providing a timely boost as orders increased by more than forecast in May. We may see some further market movement this afternoon with the ISM Non-manufacturing index expected to show a slight decline in June while elsewhere, the weekly jobless report may show a marginal improvement from 313,000 last week.

Data Released 6th July

UK 09:30 Industrial Production (May)
- Manufacturing Output

UK 12:00 BoE Rate Announcement

EU 12:45 ECB Interest Rate Announcement
EU 13:30 ECB Press Conference

GER 11:00 Manufacturing Orders (May)

U.S 13:30 Initial Jobless Claims (w/e 1st July)
U.S 15:00 ISM Non-Manufacturing Index (June)
U.S 15:00 Pending Home Sales (May)

written by Adam Solomon