Macro economics

Analytics on 03/07/2019. Investors digest Lagarde’s nomination to be the ECB head

European markets are on the rise on Wednesday, сheering the European Union leaders’ decision to nominate IMF Managing Director Christine Lagarde as the new head of the European Central Bank. Investors expect that the central bank’s dovish stance would remain in place when Draghi steps down at the end of October. Against this backdrop, Euro zone bond yields hit new record lows. In other news, Deutsche Bank has held talks with Citigroup, BNP Paribas and others about a possible transfer of parts of its equities business. Some optimism came from a EU official who pointed to “considerable improvement” in Italy’s fiscal plans for 2020.

As such, the UK’s FTSE 100 adds 0.69 per cent to 7611, Italy’s FTSE MIB gains 1.46 per cent to 21,705, France’s CAC 40 rises by 0.73 percent to 5,617, while German DAX 30 gains 0.73 per cent to 12,618. US stock index futures are slightly higher as investor focus shifts to fresh economic data including the key jobs market report due on Friday.

On the data front, Euro zone business activity picked up slightly in June but remained weak. Some upturn in the services industry managed to offset a continued downturn in factory output. The IHS Markit’s Euro Zone composite final PMI rose slightly to 52.2 last month from 51.8 in May.

After a dip towards fresh two-week lows just below 1.1270, EURUSD picked up slightly and turned marginally positive on the day as the European data came in better than expected in general. Nevertheless, the pair still struggles to regain the 1.13 figure which remains the key level to watch in the short-term charts. Despite the dollar demand is muted, the common currency lacks the recovery impetus, partly due to the reports on Lagarde’s nomination to be the next ECB president as traders expect her policy will be dovish. Technically, the pair if getting closer to the 100-DMA, and once below this threshold, the downside pressure could increase. As long as the euro remains below 1.1330, where the 200-DMA lies, bearish risks persist.

Meanwhile, GBPUSD is suffering losses for a third day in a row. The pair dived to two-week lows around 1.2556, with downside pressure intensified after the economic data. UK’s construction PMI unexpectedly declined to a decade low level of 43.1 in June from 48.6 in the previous month. The UK services sector activity slowed down its pace of expansion in June, with IHS Markit/CIPS services PMI Index fell to 50.2 versus 51.0 in the previous month and 51.0 expected. Earlier, the sentiment around the cable soured after Bank of England’s Governor Mark Carney signalled that the economy could lose its momentum in case of a no-deal Brexit and ongoing global trade disputes resulting into possibilities of monetary policy easing in coming months.

In commodities, Brent crude refreshed June 20 highs around $62 where the futures attracted some demand and turned positive on the day, trying to cling to the $63 level. A day earlier, the prices lost over 3%. OPEC and its allies extended output cuts but judging by market behavior it was not enough to counter concerns over the slowing global economy. By the way, weak China PMI data added to worries over global demand. On the other hand, the market was somehow supported by data showing a larger-than-expected decline in US crude oil inventories, by 5 million barrels. The official government data due later in the day.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 2,00 %
Switzerland 3 Month LIBOR Range -0,73 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1,5 %
Australia Cash Rate 0,75 %
Canada Overnight Rate Target 1,75 %
All rates

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