US ISM Services PMI in focus

Danske Research Team Danske Bank A/S

In focus today

Today, the US ISM services PMI is due, with consensus expecting an increase to 51.5 in July from 50.8 in June. The preliminary services PMI for July surprised to the upside, rising to 55.2 from 52.9, supported by strong domestic service demand holding up well. However, recent growth has been overly reliant on the services economy as manufacturing business conditions deteriorated for the first time this year.

Economic and market news

What happened overnight

In China, S&P services PMI rose to 52.6 in July, up from 50.6 in June, marking the fastest expansion in 14 months. The rebound reflects stronger domestic demand and increased activity in export-related services, helping to offset ongoing weakness in manufacturing and underpinning the broader economic recovery.

What happened over yesterday

In the euro area, the August Sentix indicator dropped sharply to -3.7, well below expectations of 8.0. As the first indicator reflecting investors' initial assessment of the EU-US tariff deal, it offered a view of the sentiment in the euro area. The data revealed worsening perceptions of both the current economic situation and future expectations for the euro area.

Equities: Equities delivered a surprisingly strong comeback yesterday, reversing most of Friday's losses. While this reaction aligns broadly with what we discussed in Monday's Morning Espresso, it still surprises us slightly that the market so decisively ignored the underlying signal from Friday's notably weak non-farm payrolls report. In other words, equity markets are showing little concern at this point about the potential softening in the US labour market.

Digging deeper into equities, the rally was led by cyclicals and small caps, underlining a clear "risk-on" tone in yesterday's session. One might be tempted to label this a classic Goldilocks move, though we lean more toward the view that we are seeing a degree of exuberance in equities at present.

In the US yesterday, Dow +1.3%, S&P 500 +1.5%, Nasdaq +1.9%, Russell 2000 +2.1%.

Asian equities are broadly higher this morning, and futures in both Europe and the US point to a stronger open.

FI and FX: There was a significant decline in European government bond yields yesterday and the spread between the core-EU and periphery tightened, where the 10Y Italian-German yield spread is once again touching 80bp. The US bond market could not follow the trend from Friday and yields just dipped a few bp ahead of the sale of 3Y, 10Y and 30Y government bonds during the week. There were modest movements in US Treasuries in Asian trading hours this morning.

Author

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.