European markets on hold, China equity sell-off continues

Market Brief

Yesterday’s Non-Farm Payrolls surprised to the downside and failed to provide the catalyst to drive the USD higher. June payrolls came in at 223k versus 233k expected but more importantly, it turned out that the US economy managed to create only 254k in May compared to 280k first estimate. Unemployment rate decreased to 5.3% versus 5.4% expected as the participation rate fell unexpectedly to 62.6% in June. In addition, May factory orders printed well below median forecast at -1%m/m versus -0.5% consensus while previous reading was revised to -0.7% from -0.4%. Finally, on a month-over-month basis, wages didn’t grow in June while markets expected a positive figure of 0.2%. All in all, we believe that recent US data start validating our view that a September rate hike may be hasty, especially since inflation pressures remain subdued.

US traders are off today due to Independence Day holiday while European traders should remain quiet ahead of the upcoming Greek referendum. We therefore do not expect much action today.

In Asia, Japan’s Nikkei edged higher and added 0.08% while in Hong Kong, the Hang Seng is down -0.23%. Chinese shares continue to free fall despite the China Securities Regulatory Commission’s effort to stop the sell-off by relaxing margin lending rules. Late on Thursday, the CSRC opened an investigation into market manipulation as it suspect that hundreds of companies suspended trading of their shares in order to avoid their stock price to drop further. This morning, the Shanghai Composite loses another 3.96%, down 25% since the beginning of the month while the Shenzhen Composite falls 3.77%, down 31% on the month.

In Australia, S&P/ASX retreats 1.10% as May retail sales disappointed to the downside, printing at 0.3%m/m versus 0.5% median forecast while previous reading was revised to -0.1% from 0%. AUD/USD is currently challenging the strong support area between 0.7533 and 0.7587 (previous lows). A break to the downside will open the road toward the next key support at 0.7416.

In Europe, future equity returns are mixed this morning with the Footsie down -0.24%, the CAC is up 0.04%, the SMI -0.32% while the Euro Stoxx is up 0.03%. GBP/USD is moving sideways right in the middle of its hourly range ahead of the Markit/CIPS Services and Composite PMI for June. EUR/GBP is also treading water and is moving between 0.7070 and 0.7130.

USD/CHF is stabilising after yesterday’s correction and is slowly sliding lower toward the next support lying at 0.9364 (Fib 38.2% on May rally). On the upside, the closest resistance stands at 0.9543 (previous high). EUR/CHF is trading slightly below the 1.05 threshold and we expect the single to remain within its 1.03-1.05 range against the Swiss franc. However, the upcoming Greek referendum, which takes place next Sunday, may push the EUR/CHF outside of its range.