he first day of the month and the start of Q3 got off to a positive start, despite what can only be described as some rather mixed economic data, from China, Europe and the US yesterday.
Asia markets have been fairly quiet overnight advancing in line with yesterday’s positive US and European session with the only activity of note surrounding the Reserve Bank of Australia’s decision to leave interest rates unchanged at 2.75%. The Australian dollar slid sharply after the event as the RBA Governor adopted a fairly dovish tone saying that the currency remained at a fairly high level which markets took to mean that there was scope to reduce rates further given the current inflation outlook.
The key takeaway from yesterday’s US economic data was that while growth remains just the right side of positive, the weak employment components would appear to suggest that tapering could be some way off, which helped push markets up across the board, though they did fall back from their highs late on, and this late pullback is likely to translate into a lower European open this morning.
The concern remains as always with external factors of which central bank jawboning is one and even allowing for this week’s important jobs data we also have, once again a number of Fed governors talking on the economy, starting with New York Fed chief William Dudley in Connecticut later today.
While the European economy appears to be starting to show flickers of recovery particularly in Spain and Italy where the manufacturing sector appears to be showing signs of coming off life support, the unemployment picture remains disturbingly high, though there does appear to be some evidence of a slow down there as well.
Today’s Spanish unemployment numbers are expected to show another drop in the number out of work by 83.5k, another move in the right direction from the previous month’s 98.3k. The concern is that these falls could just be seasonal in nature, given the time of year and the tourist season being in full swing.
Meanwhile in the UK, new Governor Mark Carney picked a good day to start his new job at the Bank of England as June manufacturing PMI jumped sharply yesterday to two year highs of 52.5, continuing the recent improving trend in rising PMI’s since the beginning of Q2.The British Chamber of Commerce also weighed in saying that rising exports had helped boost business confidence to its highest levels since 2007.
The hope is that today’s construction PMI number for June is equally as good with hopes high that we could also see an improvement to 51.3 from May’s 50.8.
There is rising optimism that Q2 growth in the UK will outstrip Q1’s 0.3%, which in turn will delay expectations about the likelihood of further easing from the MPC at this week’s rate meeting on Thursday.
As far as the US is concerned the economic calendar is fairly light today with only May factory orders due out with expectations of a rise of 2% doubling the 1% gain seen in April.
One stock to watch this morning is Ocado, who release earnings numbers before the open. The share price has been the focus of a great deal of speculation in the past month with the market reacting to the Morrisons tie up and rumours of a deal with Marks and Spencer. The company's ability to effectively monetise new relationships over the coming 12 months and deliver sustained profitability will be the deciding factor in their ability to maintain their lofty share price in the long term...
On the other side of the pond Ford will update the market on June sales, as traders desperately seek any additional insight into the consumer environment and state of the broader economy in the US, with Fed tapering still very much the main focus.
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