U.K. PMI services for June plunged to 54.4 from 55.4 in May, lowest level since August 2009

Main News Daily Update

GBP traders witnessed the single currency tumble approximately 0.35 percent against the U.S. dollar during the European trade.  The reason being was that U.K. PMI services for the month of June plunged to 54.4 from 55.4 in May, marking the lowest level since August 2009. Also worth noting overnight was the U.K. Treasury appointing Martin Weale to join BOE monetary policy committee. Last month, Mr. Weale voted for no change in borrowing costs as he stated that although inflation was a concern, it was offset by the risks to growth from lower euro and Greek crisis, according to the Times.

Comments and disappointing data during the European trade gives reason for the drawback in the euro and British pound. ECB President Jean-Claude Trichet said that governments must “tightly manage budgets” right now, and went onto add that stress tests are an “important element” in restoring confidence. Taking a look at the economic docket overnight, retail sales in the 16 member euro area rose 0.2 percent in May after falling a revised 0.9 percent the previous month amid economists’ expectations for a 0.3 percent rise. At the same time, the Eurostat in Luxembourg showed that annualized retail sales jumped 0.3 percent to exceed forecasts for a 0.3 percent decline. Though figures were positive for the month of May, we may see retail sales come under pressure in the medium term as household spending remains constrained by tight credit conditions paired with the lingering troubles in Europe. Moreover, the euro-zone Sentix investor confidence for July unexpectedly rose to -1.3 from -4.1. Looking ahead into this week, EUR traders face the ECB rate decision on July 8th. Indeed, market participants are weighing in a zero percent chance that the central bank will raise borrowing costs twenty five basis points, according to the Credit Suisse overnight index swaps. However, traders are sure to keep close attention on comments following the rate decision as the European debt crisis continues to rattle the markets. With a weak outlook and the continuance of the government bond purchase program, we are likely to see policy makers keep their key overnight lending rate unchanged for the rest of the year and possibly into the first quarter of next year.

The US is closed for Independence Day. In US, A large contraction in the number of government employees took non-farm payrolls down in June (-125,000). Non-farm payrolls dropped by 125,000 in June, after jumping by 433,000 in May. Highly volatile data in recent months have resulted from the implementation of the ten-yearly census. As expected, the number of federal employees thus fell markedly in June (-198,000) after increasing at a rapid pace in most recent months. Private payrolls increased by 83,000, i.e. more than in May but not as much as in March and April. The unemployment rate was surprisingly down to 9.5% in June from 9.7% in May. However, this lower unemployment rate resulted from a second consecutive decline in the participation rate (down to 64.7% from 65.0%), not from higher employment. Average hourly earnings edged down by 0.1% m/m in June, so that their year-on-year pace of growth dropped further, to 1.7% from 1.9% in the previous month. The current high level of unemployment (combined with a modest participation rate) will continue to exert downward pressure on wages in the near future.

We will get Turkish inflation statistics for June. In Danske’s view, the figures will confirm that inflationary pressures remain elevated in Turkey and that CPI-inflation has moved back to double-digit numbers. Hence, Danske put Turkish inflation (CPI) at exactly 10.0% y/y for June. On Wednesday, we will get the minutes from the latest Monetary Council meeting in Hungary. The meeting was held just as volatility in the Hungarian markets was spiking. It will be interesting to read how the Monetary Council members viewed the market turmoil and the reasons for the turmoil. The World Cup apparently has helped support the South African rand in the past couple of months and the continued strengthening of USD has probably also helped the rand outperform its Central and Eastern European peers. However, Danske think that we could be heading for a larger correction in the rand as the World Cup draws to an end.