Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Jul 03 09 06:54 GMT |

Overview & economic commentary The UK services PMI survey is likely to garner the most attention today, with US markets are closed. The manufacturing survey, released on Wednesday, rose more than expected to 47.0 in June from 45.4, while yesterday's construction PMI fell slightly to 44.5 from 45.9 - both have improved significantly from lows seen earlier in the year, but remain below the 50 level that separates growth and contraction. For the services PMI survey, we expect the index to stay above 50, close to last month's surprisingly strong rise to 51.7. Taken together, the evidence from the surveys suggests that economic activity may have stopped declining towards the end of the quarter, though Q2 growth overall may still have been negative. The key unknown, however, is the strength and sustainability of any economic recovery, given prospects of rising unemployment and the need going forward for households and the government to reduce debt levels. Outside the UK, the final estimates of euro zone services PMI are also due which, unlike the UK survey, remain well below the 50 level. Nevertheless, the ECB yesterday left benchmark interest rates on hold at 1% and indicated that they were 'appropriate' at that level, in contrast to the surprise quarter-point reduction by the Riksbank to 0.25%, though the ECB did not rule out the possibility of a further reduction. Euro zone retail sales are also due and may show a small monthly fall, as unemployment rose to a 10-year high of 9.5% and despite some modest recovery in consumer confidence levels Currency commentary S&P futures are up a shade this morning recovering from yesterday's NFP inspired sell-off, causing market participants to trim their defensive positions on the final trading day of the week. US markets are closed today and this means that light trading volumes could squeeze some currency pairs. Volatility levels fell sharply again yesterday for some G7 crosses and unless familiar trading ranges are tested, one would expect short-dated vol to stay quite subdued. The UK services PMI at 9.30 could be a market mover for sterling and gilts. We look for a slight drop to 51.4 in June, ending a spell of successive increases since last November. Key resistance for £/$ runs along 1.6441, the 10-day moving average. €/£ is offered below 0.8550 but could resume this week's upward tendency if the PMI disappoints. A widening in the 2y gilt/bund spread to +8bp could temper €/£ gains. In EM, €/pln and €/huf have reversed some of yesterday's gains but appetite to push CE3 currencies higher may be curbed ahead of next week's start of the US Q2 earnings season. In Asia, the Shanghai comp index hit a new high of 3,084. Major data and events today UK Services PMI (09:30) May 51.7 Jun (f'cast) 51.4 Median 51.5 Range 49.0:53.0 French services PMI (08:50) (final) Jun (prel) 47.5 Jun (f'cast) 47.5 German services PMI (09:00) (final) Jun (prel) 44.3 Jun (f'cast) 44.3 Median 44.3 Range 44.3:44.5 EU-16 services PMI (09:00) (final) Jun (prel) 44.5 Jun (f'cast) 44.5 Median 44.5 Range 44.5:44.6 EU-16 retail sales (10:00) Apr +0.2% Y-O-Y -2.3% May (f'cast) -0.3% Y-O-Y -2.8% Median -0.1% Range -0.5%:+0.2% Chart: UK index of services (official measure of services GDP) is expected to recover in line with the recent recovery in the services PMI survey Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.