Spain the bright spot in a poor run of Eurozone data

• UK PMI suggests 1.0% growth for Q2 GDP, services due Thursday

• Spain the bright spot in a poor run of Eurozone data

• USD slips as traders focus on slowing price increases in ISM

• Australian trade deficit collapses as commodity prices fall

Sterling remained the lead story yesterday having thumped to the highest level in nearly 6 years versus the USD courtesy of yet another moon shot piece of data.

UK manufacturing continues to make a strong and positive contribution to the UK economy and rounded off Q2 in fine fettle with a PMI of 57.5. Output is higher following increases in domestic and foreign orders with new orders at close to an all-time high. To deal with this improvement in business, employment has increased for the 14th month in a row and rose at its best level in 3 years. These gains seem to have been made across large and SME businesses; key in our eyes for the sustainability of the recovery and further progression for the sector. These data points will add fuel to the fire to those who believe that the UK economy is in a strong enough position to start normalising monetary policy via hikes in interest rates.

Export orders remain strong in spite of the uptick in GBP through the first half of the year. This is maybe as a result of GBP remaining below purchasing power parity levels versus a basket of currencies or simply that UK manufacturers are not using price as a touch point. There certainly seems to be no effect on margins yet but we and members of the Bank of England will be watching closely for signs that the pound is becoming too expensive.

The strong end to the quarter will buck up ideas as to the UK's performance through Q2 and we would agree that a strong services release on Thursday morning will be enough to push GDP to a figure at or above 1.0% growth on a quarterly basis.

News from the Eurozone was disappointing as the rate of expansion in the continent's manufacturing sectors continued to slow. The Eurozone manufacturing average fell to 51.8 from 52.0 with declines in Germany, France, Holland and Italy the most concerning. Spain's number was one bright spot - rising to the highest level in 7 years.

The dollar was unable to be saved from its recent weakness with a mixed bag of economic news. Both the manufacturing PMI and ISM releases were slightly below consensus - 57.3 vs 57.5 and 55.3 vs 55.9 respectively - and while both showed a higher level of job creation the market decided to focus on a slip in the ISM's price component from 60.0 to 58.0. Given the level of importance and emphasis Fed Chair Janet Yellen put on the lack of price pressures in the US economy at the last FOMC press conference, it was natural that a softening here would not lead to a positive USD reaction.

The recent AUD rally has been stopped in its tracks overnight by a very poor trade deficit number. Exports tumbled by 5% as declining commodity prices took their toll, sending the overall deficit to $1.911bn - the expected number was $-200m. The effect on GDP in Q2 will be obvious and the hope is that these declines are as a result of over-performance in Q1. Exports to China still grew however and now account for over a third of all exports from Australia.

Today's data highlight will be the ADP jobs announcement from the US. Following a poor H1, the USD needs to find some surer footing and a jobs gain above the 200k mark could be just the ticket. Consensus is for a gain of around 205k jobs in the month of June, roughly similar to the market's outlook for Friday's payrolls announcement.

Elsewhere we have UK construction PMI at 09.30 and factory orders from the US at 15.00.

Have a great day.