After several days of decent gains European markets slid back yesterday as concerns about the impact of last month’s Brexit vote might have not only on the UK economy, but also the economy in Europe more broadly saw investors indulge in a spot of profit taking.

These growth concerns prompted S&P Global Ratings to downgrade its economic growth forecasts for both the UK and the Euro area, while an absolute woeful UK June construction PMI number cut the legs out from underneath the recent rebound in house building and commercial real estate stocks, as concerns about a slump in the London real estate market prompted some capital outflows in the sector. This prompted Standard Life to suspend redemptions in one of its open ended property funds in an attempt to stem a rush of cash out of the sector.

In Asia this morning the latest Chinese Caixin services PMI data was a rare positive showing an expansion from 51.2 to 52.7 and raising hopes that the moves to steer the Chinese economy’s reliance on manufacturing towards services could well be starting to pay off.

Banking stocks also remained under pressure yesterday with Italian banks once again feeling the crushing weight of negative sentiment, with the perennial problem child of Monte di Paschi once again bearing the brunt of selling pressure after Italian PM Renzi was forced to deny a story that he was considering bailing out the Italian banks in defiance of Brussels.

The fact is the Italian government is up the proverbial creek without a paddle with its banks, unable to bail them out and stuck with a portfolio of up to €360bn non-performing loans that are strangling the life out of the Italian economy.

Of those loans Monte di Paschi, it is estimated has about €48bn worth, and with a market capitalisation of about €1bn it’s not hard to see where its problems lie.

The one bright spot has been recent improvements in recent economic data with manufacturing and services PMI’s showing some positive gains in recent months, though the month of May was slightly disappointing for Italy. Today’s services PMI for June should see some improvement to 50.5 from 49.8 in May, which along with the manufacturing improvement seen in Friday’s numbers is some small encouragement, high unemployment notwithstanding.

Other services data due today comes from Spain, France and Germany, with Spain feeling the seasonal benefits of its tourist sector at 55.2, while French activity is likely to have been affected by the industrial unrest despite the positive effects of Euro 2016. The expectation is for an unchanged number of 49.9, while Germany services is expected to come in at 53.2.

The shock fall in yesterday’s UK construction PMI for June to seven year lows of 46 was a big surprise and doesn’t bode well for the sector heading into Q3, and while manufacturing improved, the main focus today rests even more importantly on the UK services sector which has borne the weight on its shoulders for the past few years of the UK’s economic outperformance.

We need to see a decent June number here or we could well see a situation that sees the UK economy potentially stagnate in Q2. A slow down from 53.5 to 52.8 is expected ahead of the latest Bank of England financial stability report.

Here Mr Carney is expected to outline in further detail some of the measures he announced last week with a boost to the funding for lending scheme to make sure banks don’t tighten up credit conditions too much.

EURUSD – we’ve held above the 200 day MA for the second day in a row, with little sign of a move one way or the other. This suggests we could get a move either way and keeps the prospect for a move towards the March lows at 1.0825 on the table. To stabilise we need to see a move back above the 1.1250 area.

GBPUSD – continues to hold above its recent lows at 1.3120, and with sentiment so bearish the risk is for a short squeeze higher on a break above the 1.3550 level. We need to hold above the 1.3120 level or risk a move towards 1.2800. To stabilise and mitigate the risk of a move below 1.3000 towards 1.2800 we need to see a move back through the 1.3550 area.

EURGBP – currently finding a bit of a top at the 0.8410 area but does have support at the 0.8370 area, which was resistance on the move higher. If we hold above the 0.8350 area we could well head towards the 0.8706 area. This is the 61.8% retracement area of the 0.9805/0.6535 down move.

USDJPY – while below the 103.50 area the risk remains for a return to the 100 level as well as the previous lows at 98.95. A move below 100.00 is likely to prompt the risk of further losses and possible BoJ intervention concerns.

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