German factory orders are expected to rebound in June after a decline of 1.7% m/m in May

Market movers today

• German factory orders are expected to rebound in June after a decline of 1.7% m/m in May. The release will give a better idea of whether the weakness in both factory orders and industrial production in May was due to calendar effects or if it reflects overall weakness in the manufacturing sector in Germany. Some of the weakness could be due to the geopolitical tensions, which affect foreign demand.

• Italian GDP for Q2 is expected to reveal that the economy expanded after a small contraction in Q1. Focus will be on signs of improvement in private consumption and investments after Prime Minister Matteo Renzi implemented reforms aimed at boosting domestic demand.

Selected market news

A very strong US non-manufacturing ISM report was not enough to keep the equity market from falling and the key US indices ended the day down almost 1%. Asian markets have followed lower overnight and are trading in red across the board this morning. Overall, however, it is still Europe that has seen the biggest price correction so far since June.

The US non-manufacturing ISM rose to index 58.7 in July from 56 in June, which is the highest reading since 2005. The details were also strong with ‘new orders’ rising to index 64.9 and together with the strong ISM manufacturing index, published last Friday, this clearly signals that the US economy is accelerating at the moment after a very weak start to the year.

With six months of above 200k employment growth and survey data pointing to an acceleration of the economy in Q3, risks have increased of a rise in US yields – especially since the money market is still not priced that aggressively. The 10-year Treasury yield did not end the day higher, however, and continues to trade below 2.5%.

Geopolitical risks once again put a lid on risk appetite as the situation in Ukraine appears to be escalating. The Financial Times reports that Russia, according to senior NATO military officers, has sharply increased the number of troops and vehicles on the eastern border of Ukraine in the past few days.

Meanwhile, Russia called for an emergency meeting of the UN Security Council yesterday over the humanitarian situation in Ukraine. John Ging, director of humanitarian operations for the UN, said at the meeting that the conflict has seen over 1,300 deaths and more than 4,000 injured (both civilians and combatants) since mid-April (UN press release).