22 July 2016 at 12:03 GMT
FX markets have traded on a mixed blast of manufacturing data from the UK, key Eurozone economies France and Germany and for the Eurozone as a whole.
The GBP softened after UK July preliminary PMIs for manufacturing and services contracted, with the services PMI being sharply weaker than expected at 47.4 against an expected 48.8.
French preliminary manufacturing PMI for July came in at 48.6 against an expected 48. The French services PMI showed expansion at 50.3 versus an expected 49.5. Germany's preliminary manufacturing and services PMIs were also on the better side at 53.7 versus 53.4 and 54.6 vs 53.2 respectively.
The Eurozone's preliminary PMI was mixed but still in expansion mode.
- Canada May retail sales (1230)
- Canada June CPI (1230), expected at -0.1% m/m. previous 0.3%
- US July preliminary Markit manufacturing PMI (1345), expected at 51.5, previous 51.3
The only highlight of the quiet morning session is GBPUSD
, which fell more than 100 pips from the 1.3270 level to around 1.3163. The move came on the back of a weak UK July preliminary Services PMI (47.4 v 48.8 expected, contracting for first time in 3.5 years) when better Manufacturing PMI didn’t help offset the move. GBPUSD – 10 DMA is at 1.3178, and the low of July 6 at 1.2797. At the time of writing, the cross is sitting at second daily support around 1.3099, followed by thirrd daily support at 1.3044.
After yesterday’s ECB with no change and nothing new EURUSD heldi steady, while USDJPY oscillated around 106l. The market is not expecting a big action today before next week’s Federal Open Market Committee (July 27) and Bank of Japan (July 29) meetings and further details on stimulus (in the latter case). USDCAD is pushing on a resistance zone formed by the trend line of recent highs.
FX Options volatilities
GBP weakens after UK data, but curves basically unchanged. EURUSD market wants to sell 1-month to finance summer market and buyer of 2-month September FOMC. JPY vols unchanged to slightly softer. There's still interest to buy 1-week at-the-money +1-2 figures, but offered for very low delta strikes. Not much interest in AUD, CAD and NZD, and curves are neutral.
Historic versus implied drops fast now in JPY crosses, which means the BoJ needs to deliver something that can move market significantly (could be either a negative or positive surprise), otherwise curves will drop steeply afterwards.
It's been a very quiet session in European bond markets so far, with a little weakening in government curves and Germany’s 10-year yield flirting with the 0.00% mark once again. Following a rather strong performance yesterday, after reassuring comments from ECB president Mario Draghi, high-yield credit and subordinated financials as well as peripheral government bonds are trading a few basis points wider.
European markets opened lower on Friday after a soft finish to Thursday's US markets which carried over into Asia. Markets then turned around after UK PMIs showed a dramatic weakening in output, generating hopes of further stimulus. Major indices are currently mixed on low volume with telecoms and utilities outperforming.
Vodafone is up 4.5% after reporting better-than-expected first-quarter revenue on an improved European market.
Syngenta is up a little despite disappointing numbers but described their takeover talks with ChemChina as “constructive”.
Finnish crane maker Konecranes is one of the best performers, up 12.5%, after reporting better-than-expected second-quarter profits.
In the US, numbers are out from General Electric, Moody’s and Whirlpool.
Mid-session Europe is part of TradingFloor's stable of commentary running through from the US close, through Asia to the European session. Click below to keep abreast of all the developments as they happen.
The pound was dented by a weak signal from the UK
manufacturing sector. Photo: iStock