Eurozone retail sales expected to see a 0.4%mom decline

Market Movers

• The US markets are closed today ahead of July 4 and with only tier-2 data releases in the calendar, Greece is likely to be at the centre of attention ahead of the referendum on Sunday.

• In terms of data, euro-area retail sales figures for May will give more information about how consumers have reacted to the higher oil price. Overall, we expect slower growth in private consumption in Q2 compared with Q1, when the very low oil price was a significant tailwind. On the other hand, higher employment growth will continue to support consumer spending. We expect a decline in retail sales of 0.4% m/m after it rose 0.7% m/m in April.

• We will also receive the first releases of UK, Spanish and Italian service PMI. The UK service PMI has for some time been elevated compared with actual growth in the service sector. Service PMI declined 3 index points from April to May but we estimate service PMI was unchanged at 56.5 in June as consumers’ purchasing power is boosted by increasing real wage growth. In Italy, the PMIs have improved and suggest GDP growth continued to strengthen in Q2 after being 0.3% q/q in Q1. In Spain, the recovery remains on track and we expect the service PMI to signal even stronger economic activity.

• Swedish data and Riksbank reflections. For more on Scandi markets see page 2.

Selected Market News

Markets remain in wait-and-see mode ahead of this weekend’s Greek referendum and trading overnight was dominated by weighing the likelihood of a ‘Yes’ vote in Greece and the somewhat weak US employment report out yesterday. The latter showed middle-of-the-road job creation (223K) but negative revisions and although the unemployment rate declined to 5.3%, this was caused by a plunge in the participation rate. With average hourly earnings growth still subdued and total hours worked growing only modestly, our income proxy suggests that household income growth slowed in Q2.

The front end of the US money-market curve has postponed a first Fed hike in recent weeks (now priced for early 2016): first it was the June FOMC meeting that sowed doubts about whether September would at all be a possibility, then Greek uncertainty – a key Fed worry - took over and now the mediocre June employment report suggests the labour market is OK but not strong enough. US Treasury yields ended the day lower with the 2Y down some 6bp. EUR/USD remains below the 1.11 mark.

Equities were mixed in both the US and Asian session with the latter yet again seeing significant losses in the Chinese indices after the Chinese (HSBC) service PMI dropped to 51.8 in July (from 53.5). Brent crude down to the USD62/bbl level after yesterday’s Baker Hughes report showed a rise in US rig counts for the first time in 2015 after dramatic drops during Q1; this adds to evidence that US oil producers continue to see their cost base shift lower. If US oil supply continues to post decent growth rates, this could move the floor for the oil price lower again.