The first trading session of H2 saw JPY selling as a prominent theme in Asia overnight, though USD/JPY and EUR/JPY have settled into range trading during London hours. The 4th consecutive rise in Chinese manufacturing PMI supported risk appetite overnight though this news was insufficient to push stock market higher in Asia. The release of the Japanese Q2 Tankan report brought an improvement in confidence among large manufacturers but at -48, this was worse than the median consensus. Along the lines of yesterday's industrial production release, evidence of economic stabilisation is emerging in Japan but a return to growth still appears to be some way off. EUR/USD is little changed this morning. Cable has edged a little lower relative to last night's close.
The buying activity that has recently been evident at the London open was absent today suggesting that it, and yesterday's coincide break higher, were linked to quarter end activity.
In contrast to yesterday's final UK Q1 GDP report, today's data were better than expected. Jun Manufacturing PMI rose to 47.0 from 45.4 in May consistent with signs that the sector is stabilising. While cable and EUR/GBP have been trading mostly sideways this morning, sterling has rallied significantly since March but since recent data has lacked strength sterling is without fresh support.
The Fed's Yellen stated overnight that expectations that the Fed will hike rates are 'jumping the gun'. Relative to the optimism that was evident in the market at the start of June, a more realistic sense over the breath of the recession appears to have settled on the market. Most market commentators see no Fed tightening before next year. No policy change is expected from the ECB tomorrow but the focus of policy is likely to remain on liquidity provision.
Australian May retail sales data was better than expected overnight at +1.0% m/m. However, buildings approvals provided a negative shock falling 12.5% m/m in May. AUD/USD fell overnight but has clambered back to last night's close during European hours.
US ISM manufacturing data are due this afternoon in addition to MBA mortgage applications and pending home sales numbers. The June ADP employment change figure is also due ahead of tomorrow's key US payrolls data.
