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Market movers today
ECB President Mario Draghi is due to speak today at 9:00 CET, giving a key note speech at the Lindau Nobel Laureate Meetings. We expect him to come back from the summer holidays with a dovish message – one that is likely to be delivered at Jackson Hole on Friday also. See Euro Area Research: Draghi returns to Jackson Hole with a dovish message, 18 August 2017.
Euro Flash PMI are also due for release. After a 10-month streak of rising manufacturing PMI in the euro area, we saw a decline from 57.4 in June to 56.6 in July. We saw declines in both activity and the leading order-inventory indicator. The appreciating euro is also likely to become a headwind for export orders, so we estimate manufacturing PMI has fallen to 56.2. Services PMI remained at 55.4 between June and July but has also started to show some exhaustion since April. While we expect services PMI to show a small decline to 55.2, we emphasise that PMIs remain at very strong levels, still pointing towards solid growth in Q3.
In the US, the Markit PMIs for both manufacturing and service are due for release. In July, manufacturing PMI took a large jump to 53.3, up from 52.0 in June, ending a five-month streak of declines. We expect the August figure to have remained around the 53.3 level. Service PMIs have shown a rising trend over the past four months, climbing from 52.8 in March to 54.7 in July. We expect the August figure to continue upwards to 55.0.
Other events will be the Fed’s Robert Kaplan speaking (voter, dove), US new home sales and euro area consumer confidence.
Selected market news
Risk sentiment improved yesterday supported by reports that the Trump administration and law makers are making progress on tax reform plans. US stock markets mirrored the positive development in Europe with S&P500 and Dow Jones closing 0.99% and 0.90% higher, respectively, while the USD gained versus JPY in the FX market . With Steve Bannon leaving the White House last week, the odds of less infighting within the white House and more politics is likely to have improved. Price actions yesterday indicate that expectations of any fiscal boost are low and this could potentially be a posit ive for risk markets in coming months if the administration succeeds with a tax reform.
The Trump administ ration raised the pressure on Russia and China yesterday to isolate North Korea by imposing sanctions (financial rest rict ions) on Chinese and Russian companies and individual persons it accused of conspiring with North Korea to avoid sanctions, and thereby assisting Nort h Korea’s development of nuclear weapons and ballistic missiles.
Italian government bonds underperformed significantly yesterday with yields on the 10-year benchmark government bond trading 7bp higher versus Germany. The negative market reaction follows an interview with the Italian publication Libero Quotidiano, where Silvio Berlusconi argued in favour of the introduction of a national parallel currency, to help Italy regain monetary sovereignty. Berlusconi said that such a parallel currency would be consistent with European Treaties, despite possible opposition from other countries. The adverse market react`ion to this story underscores that Italy remains a weak spot in the euro area. For more details on Italy,
