26/07/2024
Written by: Ian Morley
Summary
Equity markets continued their ascent to record levels, supported by stimulus efforts in China and strong earnings from technology companies. Favourable PMI results, particularly in the manufacturing sector, contributed to positive market sentiment. The initial weakness of the USD in the morning was offset by a recovery in treasury yields following the encouraging PMI figures.
Earlier in the day, UK PMI numbers exceeded expectations, providing a boost to GBP, which briefly reached a new four-month high against GBPEUR. However, caution is advised as GBP positioning appears stretched, suggesting potential limitations to further gains. European PMIs, though disappointing, had a muted impact on EUR ahead of the ECB meeting scheduled for today.
Speeches:
· EUR: ECB Lagarde.
Our Insights: Two main focal points for today:
1. The ECB’s communication, particularly Christine Lagarde’s remarks on the timing of the Bank’s first rate cut. Monitoring the situation in the Red Sea and potential inflation concerns related to regional tensions will likely influence Lagarde’s commentary. Any delay in rate cuts may positively impact EUR.
2. The first estimate of Q4 GDP in the US, with expected growth slowing to 2%. Despite the slowdown, the US economy demonstrates resilience, and USD trading is anticipated to remain within established ranges.
Chart of the Day: All eyes are on the ECB today, awaiting Christine Lagarde’s message regarding the timing of the first rate cut. Wage negotiations and supply-side constraints due to Middle East tensions could lead Lagarde to hint at a summer rate cut, deviating from the market’s current expectation of a 60% chance of a cut in April. The chart illustrates a steady decrease in projected rate cuts for the year.