Today's data releasesKey levels
09:30UK construction PMI  
10:00EU retail sales Support
15:00US factory orders & durable goodsGBP/USD1.3040
17:00EU ECB's Praet speaksGBP/EUR1.1151

Market overview

Good morning all, judgement day is upon us. Tonight England take on Colombia in the last 16 of the World Cup which could prove one of their hardest games on route to the final! It will also determine whether my research of how to get to The Samara Arena from Moscow was worth it. And for the record you cannot walk as it takes nine days!

Yesterday saw the release of UK Manufacturing PMI data; a slight decline was expected for June but unexpectedly PMI inched up to 54.4 from a consensus of 54.0. However, this release capped the weakest quarter for the British Manufacturing PMI in one and a half years, which suggests that prospects for this sector looked doubtful. Optimism fell to its lowest level this year as factory bosses raised concerns about costs, possible future trade tariffs, the exchange rate, and Britain’s departure from the European Union which is now only nine months away. Sterling initially moved higher against the majority of currency pairs before ending the day on a slightly bearish notes after Monday’s Brexit headlines gave markets little good news.


Odds of a favourable agreement with EU leaders in Brussels are beginning to look slim, and Prime Minister Theresa May is increasingly caught between a rock and a hard place as EU negotiators continue to show no interest in making concessions for the UK to cherry-pick when and where it gets to remain in EU trade agreements, and hard-line Brexiteers within the UK's parliament continue to show no interest in making concessions in their demands for a complete exit from the EU trade mechanisms. Business leaders continue to face growing fears from the lack of clarity on what the business landscape will look like post-Brexit, and PM May's statements on Monday that she wants to see a customs union relationship maintained with the EU until 2020 did little to assuage market concerns, as the PM's explanations continue to look thin on specific details of how she'll make it work. Europe-Germany may have seen last of any negative news for now. Germany's Christian Social Union (CSU) party reached a deal with Chancellor Merkel’s Christian Democrats (CDU) over illegal immigration, and the resignation threat has been withdrawn.

The fading political uncertainty could subdue downside pressure around the common currency. However, yesterday’s EU manufacturing data did little to help the single currency as the final IHS Markit Eurozone Manufacturing PMI posted an 18-month low of 54.9 in June, down from 55.5 in May. The PMI has signalled a weakening in the pace of expansion in each month since the turn of the year, as manufacturers have experienced a synchronised easing in growth of both production and new order volumes.


Stateside, US manufacturing activity increased in June, but the robust economy and import tariffs were causing bottlenecks in the supply chain which could potentially cause issues further down the line. The ISM said its index of national factory activity jumped to a reading of 60.2 last month from 58.7 in May showing a stark contrast versus the UK and EU, albeit all three economies are in expansion territory (above 50). Investors are expected to sit cautiously on the side-lines as it is crunch time for global trade. Starting this Friday, unless Trump changes his mind, the US will impose tariffs on $34 billion of Chinese goods, with China set to retaliate the same day, imposing countervailing levies, including on US-manufactured cars.

The day ahead

This morning the UK release their second of three PMIs, with Construction expected to remain in-line with May at 52.5. Shortly after the Eurozone release retail sales data before the market watches comments from the ECB’s Praet this evening. Across the pond we have release of factory orders and durable goods at 3pm. 

Thought of the day

It was ten years ago to the day when the European Central Bank raised interest rates on the cusp on the global financial crisis. On July 3rd the ECB hiked borrowing costs to combat inflation running at twice its target. By October it was reversing the decision as economic growth evaporated. Mario Draghi is now being criticised in some quarters for waiting too long to tighten monetary policy. Perhaps he’s haunted by previous experiences and is currently leaving investors expecting the next rate hike at the end of 2019. The above illustrates the importance of timing when making key financial decisions. If you have an important decision looming and aren’t sure how to handle the timing of execution please call the Investec Dealing Desk on 0207 597 4134. 

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