Asian markets trade lower as Pound slumps

Yesterday’s markets

7th July 2016

  • German Factory Orders: 0.0%
  • ECB President Draghi Speaks
  • CAD Trade Balance: -3.3B
  • USD Trade Balance: -41.1B
  • USD ISM Non-Manufacturing PMI: 56.5
  • USD FOMC Meeting Minutes 

The Pound’s woes continued throughout Wednesday. The trouble came early as the Pound slumped on overnight Asian markets, hitting fresh lows against the US Dollar. The drop below 1.29 registered a 31 year low, before mounting a modest recovery but remained susceptible to drops over the day’s trading. 

In terms of data, the main focus was on the release of the Federal Reserve FOMC Minutes from their pre-Brexit meeting. Federal Reserve policymakers who were already worried about the weak US job growth, expressed concerns over the "potential economic and financial market consequences" of a Brexit. Due to the "considerable uncertainty" surrounding the referendum before the vote, Fed officials unanimously decided on June 15 to hold their benchmark interest rate steady between 0.25% and 0.5%. As a Brexit has now been confirmed, analysts do not expect any further Fed interest rate hikes for many months. The other notable data release was the US ISM Non-Manufacturing PMI. This was an improved reading of 56.5, better than the forecast figure of 53.3, and an improvement on last month’s reading of 52.9. The sentiment surveys which are released this month, mostly reflect a pre-Brexit sentiment given the timings involved in surveying and releasing. An accurate reflection of the impact of Brexit, was the UK Lloyds Business Barometer which crashed from 32 to 6, a level not seen since the Eurozone debt crisis. Confidence in the wider economy also slumped into negative territory, with more firms feeling pessimistic about the future.

Today’s markets

6th July 2016

  • GBP Halifax HPI m/m
  • GBP Manufacturing Production m/m
  • EUR ECB Monetary Policy Meeting Accounts
  • USD ADP Non-Farm Employment Change
  • USD Unemployment Claims
  • USD Crude Oil Inventories
  • JPY Current Account

With the Pound still under scrutiny, monthly UK Manufacturing Production will be the focus of the morning. This is expected to drop from 2.3% to -1.2% this morning. Manufacturing makes up around 80% of total Industrial Production and is a leading indicator of UK economic health. At the same time we also have the Industrial Production figure which is similarly expected to drop.

Following this, the focus will shift across the pond where we have the ADP Non-Farm Employment Change later in the afternoon. This is the privately collated figure released prior to the official government number on Friday. The ADP number is expected to drop to 158K from 173K in a continuation of last month’s weak US employment data. A continuation of soft US employment data would add further weight to expectations that the Federal Reserve will not be raising US Interest Rates any time soon.