Genesis’ 1973 album laments the loss of English folk culture and increasing American influence.  43 years on, England can now have back as much of the former as it cares for, but has to hope it can look forward to even more of the latter. The Pound meanwhile continues to be sold, and while ‘cable’ is 125 points off yesterday’s intraday lows, it is still mired below $1.30  and looks well on its way to meeting NAB’s FX Strategy team’s target of $1.20 by the middle of next year (or should that read the middle of next week?) . News yesterday of another three UK property funds suspending redemptions (bringing the total so far to six) is the latest addition to negative influences on Sterling.

The Pound again sits at the foot of the G10 FX scoreboard in the past 24 hours, -0.74% against the dollar, while the Australian dollar has just pipped the Japanese Yen to top spot, so fully recovering from the dip seen earlier Wednesday yesterday on some combination of a ‘risk-off’ market tone and to some, minds, the re-insertion of an explicit easing bias into Tuesday’s post-meeting RBA statement. Risk sentiment is  a little improved into the New York close, with the VIX back down below 15 (14.96) and US equity indices showing gain of 0.5-0.75% into their New York close, shrugging of the sea of red seen is Europe earlier Wednesday (Eurostoxx 50 -1.83% with the FTSE100 -1.25%).

Sovereign yields at 10 years are little changed in either Europe or the U.S., which does imply a pullback higher from intraday lows, and led by the front end of the US curve after the US non-manufacturing ISM printed a stronger than expected 56.6 up from 52.9 in May and 53.3 expected.  The rise was led by new orders (+4.7 points) and business activity (+4.4 point).  While the employment sub-index was also higher (52.7 from 49.7) this is more consistent with a pickup in employment in August/September than necessarily suggesting a much stronger rise in non-farm payrolls to be reported this Friday. Also in this respect, the separately reported Help Wanted on-line job ads series showed a further fall in June. As for the June FOMC minutes published a few hours ago, perhaps the most that should be said about them is the ‘uncertainty’ word count reached a new high of 13. They were completely non market-moving.

Just as markets can’t seem to hold AUD down, so the Euro continued to show no signs of Brexit contagion, back above 1.11 against the USD. This might not last as we head into some key political event risk in September/October (specifically the re-run of the Austrian presidential elections and the Italian referendum on constitutional reform to the Senate. The latter is viewed as a no-confidence vote in PM Renzi’s ruling Democratic party (PD) but where the Five Star Movement, led by sardonic comedian Beppe Grillo and who is demanding a referendum on ditching the euro, has just overtaken the PD in four separate opinion polls.

Coming Up

Nothing to see of note in Australia today – just the AiG Construction PMI.  China’s June FX reserves are due but aren’t likely to be released before 6pm AEST. A decline of around $35bn is the consensus expectation, though if near correct we’d judge that a large part of this would be from the negative mark-to-market on China’s GBP reserve holdings. BoJ Governor Kuroda speaks at 10:30 AEST.

Offshore tonight, we’ll get UK industrial production data but which are for May so the best part of a month before the EU referendum. A sizeable fall is expected though (-1%) perhaps reflective of economic inertia setting in ahead of the plebiscite.

The ECB published minutes of its 2 June meeting, but which will be largely irrelevant given the ECB has since the meeting downgraded its view of Eurozone growth in the wake of the UK referendum outcome.

After last nights’ non-manufacturing ISM and ahead of tomorrow’s non-farm payrolls report, we’ll get the ADP employment estimate and weekly jobless claims.

Overnight

On global stock markets, the S&P 500 was +0.54%. Bond markets saw US 10-years -0.01bp to 1.37%. In commodities, Brent crude oil +1.65% to $48.75, gold+0.5% to $1,366, iron ore +0.0% to $55.93. AUD is at 0.7516 and the range since yesterday 5pm Sydney time is 0.7438 to 0.7519.

For full analysis, download report

•  Markets Today:  7 July 2016 (PDF, 116kb)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

Disclaimer