Q2 is here - The week ahead...
Week Commencing Monday 3rd July 2017
EZ: Factories continue to blast off as Eurozone turns the corner!
Factories across the Eurozone rounded off the first half of 2017 by ramping up activity at the fastest rate for over six years as rising prices failed to put a dent in orders, a survey showed on Monday.
Manufacturing Purchasing Managers' Index for the euro zone rose to 57.4 in June, up from May's 57.0 and pipping the preliminary reading of 57.3. Suggesting the momentum will continue into the second half, new orders rose at the fastest rate since early 2011, backlogs of work increased at the fastest pace in over 13 years, raw materials were depleted and factories increased headcount at a near record pace.
Signs of accelerating activity and price rises will be welcomed by policymakers at the European Central Bank who have for years failed to get inflation anywhere near their target. Inflation slowed in March by far more than economists polled by Reuters had expected, driven down mostly by a deceleration of energy price rises, official estimates showed on Friday.
Prices in the 19 countries sharing the euro rose 1.5 percent year-on-year, Eurostat estimated, down from a four-year high of 2.0 percent recorded in February. The Bank wants inflation of just under 2 percent.
Sterling (GBP) - With poor data expected from the UK this week, coupled with light trading flows from the US during the bank holidays, we expect Sterling to perform poorly during the week. With weak PMI’s, Sterling should find it difficult to break through the 1.30 barrier on Cable, while GBP/EUR should continue to trade in the 13’s, potentially pushing into the 12’s.
US Dollar (USD) - With a light start to the week with Independence Day, we expect minimal movement in Dollar pairs until Wednesdays FOMC minutes are released. Should we see a continued hawkish committee, I expect to see the Dollar reverse some of its recent losses versus both the Euro and Sterling.
Euro (EUR) - The Euro continue to test most majors given the relative strength of its economic indicators, and we expect this to continue 1.13/1.12 are still very much in the range versus Sterling, however this pair remains highly susceptible to Geopolitical announcements.
Economic Calander for the Week
We have a busy week for the UK with the all important PMI releases scheduled for the first half of the week. We expect UK Manufacturing to come in slightly lower at 54.8 versus last months 56.3 print. Construction on Tuesday should come in lower again at 55.0 versus last months 56.0 print.
Finally, Services PMI should come in at 53.5 versus last months 53.8 print. We then shift out attention to Friday’s Manufacturing Production, which we expect to expand from 0.2 percent to 0.5 percent on the month.
This week marks independence day, so expect slow volumes on both Monday and Tuesday. Moving to Wednesday we have the FOMC minutes, which may well shed further light on how the Fed are looking to raise rates during the second half of the year.
Thursday sees ADP NonFarms, which should come in lower at 188k versus last months 253,000. Finally, Nonfarm Payrolls should come in at 180k versus 138k, leaving the unemployment rate the same at 4.3 percent.
We expect unemployment to drop down from 9.3 percent to 9.2 on Monday, with Manufacturing PMI expect to continue to expand to 57.4. Eurozone Services should remain stable at 54.7 on Wednesday while Retail Sales should come in at 0.3 percent versus last months 0.1 percent print.