Daily Insight

Over the past couple of weeks, several members of the ECB's governing council have publicly reiterated their desire for the Central bank to become more aggressive towards monetary tightening as growth in the economy begins to gather momentum. The Ifo business climate index in Germany has seemingly shrugged of the threat of global inflationary pressures and higher energy prices to continue showing signs of robust growth and earlier this week, the PMI survey for June showed that European manufacturing had expanded at the fastest pace since July 1991. All of these economic factors contribute to speculation that the ECB will need to lift interest rates at a much faster rate than initially intended and therefore, the Euro is strengthening as a result. The PMI survey for euro-zone services is released this morning and is expected to show modest signs of growth in June, increasing to 59.0 from 58.7 in May. In addition, Euro Retail Sales for the month of May is released this morning and forecasters are anticipating a more measured sign of growth following the 1.4% surge in April. Nevertheless, sales are expected to increase by 0.2% and we should see further signs of growth over the next several months thanks largely to World Cup fever gripping the continent.

Following some positive signs of growth in UK manufacturing earlier this week, the Pound has been given a little reprieve in the past 24hrs, holding firm against the Euro above 1.4400. The Bank of England rate announcement tomorrow draws ever closer and although it is widely anticipated that the MPC will hold interest rates at 4.50% for the eleventh month in succession, pressure is building for the BoE to begin tightening rates in the face of rising inflation. Following the untimely death of David Walton last month, it will be interesting to see how the seven strong committee will vote and whether another member will adopt the sole voice for a rise in UK rates. There is some significant data released this morning with the CIPS Services Survey and forecasters are predicting that the recent growth in the service sector maybe fairly muted in the figures released for June, dropping to 58.9 from 59.2 in May.

The markets were fairly quiet yesterday as the U.S celebrated their 4th July Independence Day and the Dollar seems to have consolidated around 1.8400 against the Pound following that dramatic downward swing towards the end of last week. With the Federal Reserve raising U.S interest rates by a quarter point last Thursday, the dollar was largely affected by the accompanying statement where the Fed reiterated their desire to stem the threat of rising inflation but the language used wasn't as aggressive as in previous months. Therefore, the market took the opinion that the a pause in U.S rates was in sight as investors trimmed their bets for an August rise in rates. There is some important data released this afternoon in the States with the ADP Employment report expected to give some advance insights into Nonfarm payrolls, which is released on Friday. Elsewhere, U.S Factory Goods Orders in May are expected to increase by 0.1% following a sharp decline in April and that mirrors the figures for Durable Goods Orders in May, which showed shipments had increased by 2.6%.

Data Released 5th July

UK 09:30 CIPS Services Survey (June)

EU 10:00 PMI Services (June)
EU 10:00 Retail Sales (May)

U.S 13:15 ADP Employment Report (June)
U.S 15:00 Factory Goods Orders (May)

written by Adam Solomon