Risk appetite held firm on Tuesday amid stronger than expected global PMI business confidence readings. There were still reservations over US and global coronavirus developments.
European equity markets posted significant net gains with further support for the US technology sector also a feature. The Euro was boosted by stronger than expected Euro-zone PMI data.
The dollar lost ground with a further dip in underlying demand and EUR/USD moved above 1.1300. Sterling secured tentative gains after the government announced lockdown restrictions with GBP/USD above 1.2500 amid firm risk conditions.
There was a strong recovery in the flash June French PMI indices with the services-sector index at 50.3 from 31.1 previously while manufacturing and composite indices also recovered to above 50.0. There was a slightly less robust recovery for the German indices with manufacturing at 44.6 from 36.6 previously. The Euro-zone composite index strengthened to a 4-month high of 47.5 from 31.9 previously. The data still indicated contraction for the Euro-zone as a whole with new business and order backlogs also continuing to decline, but there was a further sharp increase in business confidence.
EUR/USD moved higher following the data on recovery hopes, although there was selling interest above 1.1300. Sentiment was dampened slightly by reports that Germany would impose a local lockdown in the Gutersloh district in North-Rhine Westphalia due to the outbreak at the Tonnies meat-processing plant.
According to sources, the EU will hold another meeting to discuss the recovery plan on July 17th and it may not be the last meeting.
The flash US manufacturing PMI index strengthened to 49.6 for June from 39.8 and above consensus forecasts of 48.0 while the services-sector index strengthened to 46.7 from 37.5. This was a 4-month high, but the only one of the main European and US releases which did not exceed market expectations by a significant margin. New home sales were above consensus forecasts at an annual rate of 676,000 from 580,000 previously with the Richmond Fed index recovering strongly to 0 from -27 previously.
The dollar overall remained weaker as defensive demand faded and commodity currencies strengthened with EUR/USD strengthening to weekly highs near 1.1350 before fading slightly. The US currency maintained a soft tone on Wednesday with EUR/USD holding above the 1.1300 level.
Following the overnight scare on Navarro’s China comments, risk appetite held firm ahead of Tuesday’s New York open, but the yen was able to resist significant selling. Wider dollar losses had a notable impact with USD/JPY retreating sharply to lows near 106.10 before a recovery to the 106.45 area.
US medical adviser Fauci stated that the surge in Florida coronavirus cases was disturbing and that the next two weeks will be critical in addressing spikes. Texas also reported a record increase in new infections for Monday and more than double the increase recorded a week ago which triggered fresh unease with no dollar headway.
In its summary of opinions, the Bank of Japan stated that a prolonged negative impact of coronavirus on the economy looks unavoidable.
The Chinese Beige Book reported that the economy contracted for the second quarter from the previous year and expects negative growth for 2020 as a whole. Beijing, however, indicated that June imports from the US had increased sharply which helped ease immediate trade tensions.
Risk conditions were steady in Asia with USD/JPY finding some support below the 106.50 level, although with a lack of underlying US currency demand.
The headline flash June UK PMI manufacturing index edged back into expansion territory with a 4-month high at 50.1 from 40.7 and above consensus forecasts of 45.0. The services sector index also posted a strong increase to 47.0 from 29.0 and well above consensus forecasts of 40.0 amid a limited re-opening of the economy. Business confidence strengthened further, although underlying order flows remain weak and employment continued to decline for the month.
Sterling moved higher following the data, but again failed to sustain the advance and dipped lower into the New York open amid negative sentiment.
Sentiment stabilised after UK Prime Minister Johnson outlined an easing of restrictions in England from July 4th with many leisure and hospitality facilities allowed to re-open which will help boost the economy at the start of the third quarter.
|09:00||CHF ZEW Expectations(JUN)||31.3|
|09:00||German Business Expectations(JUN)||80.1|
|09:00||IFO - German Current Assessment(JUN)||80||78.9|
|09:00||German IFO Business Climate Index(JUN)||78.3||79.5|
|12:00||USD MBA Mortgage Applications||8.00%|
|14:00||US House Price Index (M/M)(APR)||0.10%|
|23:45||NZD Trade Balance (M/M)(MAY)||1267M|
|23:45||NZD Trade Balance (Y/Y)(MAY)||-2.500M|