Global Sentiment Boosted Despite UK Political Disarray
A pause in trade war rhetoric at the start of the week gave traders the opportunity to focus back on fundamentals and more specifically on the upcoming US earnings season.
Enthusiasm for earnings in Q2 drove Wall Street to post its third straight session of gains. Taking cues from the US, Asian markets extended their gains overnight, which is translating into another positive start for Europe.
The FTSE, which rallied over 0.9% in the previous session, outperformed its peers largely thanks to a significantly weaker pound. The index could find itself trading more in line with its European peers today as the pound attempts to stabilise.
Pound Stabilises as May Remains and Boris Leaves
Theresa May defiantly stood her ground on Monday; with threats of a vote of no confidence unfounded she lives to fight another day as PM. As Theresa May’s position stabilised, the pound managed to pick itself up off its lows and ended Monday just 0.3% lower.
UK Manufacturing, industrial production, monthly GDP
In the absence of any further Brexit headlines or domestic political disarray, investors will look towards manufacturing and industrial production data due this morning. Both sets of figures are expected to rebound convincingly in May, after heavy falls in March and April thanks to unseasonably harsh weather conditions. Manufacturing is expected to have increased 0.9% month on month whilst industrial production is expected to have picked up 0.5% month on month, up from a contraction of 0.8% in April.
As from this month, the Office of National Statistics will also begin publishing a monthly GDP report providing policy makers with more frequent data on the growth of the economy as a whole. UK GDP is expected to have increased at 0.3% month on month n May, with the 3-month average forecast to be 0.2%, reflecting the slower growth from the earlier months.
Stronger data is expected to lift the pound, particularly a solid figure from the monthly GDP release, which could help boost the case at the BoE for a rate rise, when policy makers meet in 3 weeks time. Any evidence that points to the UK economy recovering from its sluggish start to the year could lift rate hike hopes, helping put domestic political woes in the rear-view mirror (for the moment) and boosting the pound back towards $1.33.
German, EZ ZEW Confidence Data
The euro continues to recover lost ground in July after suffering from trade war fears and Italian political concerns which saw it plummet over 5% across April, May and June. However, the recovery may hit a sticky patch today on the release of German ZEW economic sentiment data. Economic sentiment hit its lowest level last month since 2012 and is expected to show further deterioration on this month.
Should this be the case we could see EUR/USD target $1.1720, on the other hand a surprise to the upside could see the euro extend its gains, pulling $1.18 back into focus.
Opening calls
FTSE to open 12 points higher at 7700
DAX to open 59points higher at 12602
CAC to open 16 points higher at 5419