The ISM non-manufacturing index for November

Market movers today

• In the US, the main release today is the ISM non-manufacturing index for November. We think the index is at a reasonable level and expect only a small increase from 54.8 to 55.0.

• The Fed’s Dudley and Evans (‘dovish’ members with 2017 voting rights) will speak today.

• In the euro area, the Sentix investor confidence index for December is due to be released. The figure has continued to surprise on the upside in recent months and we expect another, though moderate, increase in the Sentix to 15 from 13.1 in November.

• Retail sales for the euro area for October are due to be released. We have seen two consecutive months of declines and we estimate the October figure will show a moderate bounce back to 0.8% m/m, led by a large monthly increase of the German figures.

• The Eurogroup is due to discuss the progress in Greece's bailout programme and possible debt relief.

• In the UK, the most important data release today is the PMI service index for November. The index has rebounded since the EU vote, but the fall in the service confidence indicator may signal that growth is beginning to slow due to Brexit uncertainties and the weaker GBP. We estimate the PMI services index fell to 53.2 in November from 54.5 in October.

• Note also in the UK, that the Supreme Court hearing on the government’s appeal against the High Court ruling that Parliament must vote on triggering Article 50 will begin today.

• In the Scandi countries, industrial production data for Sweden is due out today.

Selected market news

Markets were hit this morning by negative risk sentiment after Italian Prime Minister Matteo Renzi suffered a crushing defeat in the constitutional referendum and vowed to resign on Monday afternoon. According to projections, Renzi managed to win little more than 40% of the vote. The euro fell to a 20-month low, with EUR/USD hitting 1.0505 and Asian equity markets also eased. With the ‘no’ vote, Italy is now entering a period of heightened political and economic uncertainty. To avoid the risk of having to call early snap elections, with the Five-Star Movement potentially gaining power, President Mattarella will now have to embark on a round of consultations with party leaders to find a new prime minister – likely to be from Renzi’s PD party – to lead a care-taker government, which will be tasked with revising the new electoral law. Economy Minister Pier Carlo Padoan or Senate president Pietro Grasso are possible candidates to replace Renzi. While a ‘no’ vote was widely expected, the size of the victory has exceeded most predictions, making the public’s acceptance of a possible technocratic government less likely. The political turmoil triggered by Renzi’s resignation could now also jeopardise plans to recapitalise Monte dei Paschi di Siena.

Although Italy’s vote is a setback for the EU establishment, there was some cheer from Austria, where centre-left candidate Alexander Van der Bellen beat back a challenge from his right-wing populist opponent Norbert Hofer to become Austria’s next president, winning with 53.3%.

Download The Full Daily FX Market Commentary