Merkel's coalition government hangs in the balance
German Chancellor, Angela Merkel’s coalition Government hangs in the balance as the two sides are expected to bring the dispute over the migration policy to an end today. If an agreement cannot be made, it will leave Merkel without Government majority. The talks have not succeeded so far, with the chair of the Bavarian Christian Social Union, Horst Seehofer threating to resign over the issue. Merkel did gain support from other EU leaders, as last week they decided on a deal which would see refugees shared out on a voluntary basis. However, this new deal was still not enough to change Seehofer’s mind. The Euro has begun to slip in reaction to the news as the markets opened today.
The Pound continues to take a hit as the Brexit deadline draws closer. The UK Government have produced a third model for handling customs after the UK leaves the EU, which is set to be discussed by the senior ministers later this week. The previous two models have caused a battle between the ministers and have seen Prime Minister, Theresa May attempt to balance the two sides. However, trying to create a balance is risking her being overthrown by the Tory MPs. The hope is that the Cabinet will come together on Friday, agree on a model and the UK will be able to proceed with publishing a white paper, setting out the details for the further partnership between the EU and UK.
Today will start with the release of the UK Manufacturing PMI, which is expected to downtick slightly from the previous reading to post 54.1, after accelerating to 54.4 from 53.9 last month. The Eurozone will be releasing their final reading of the Manufacturing PMI, which is expected to remain at 55. Individual readings from Italy, France and Germany are also set to be released. Across the pond, the US will be releasing the ISM Manufacturing PMI. The reading is expected to drop from 58.7 to 58.2 for this reading.
Tuesday will be a quieter day with little high tier data on the economic docket. The UK will be releasing the latest reading of the Construction PMI, which is expected to uptick to 52.6. Across the world, the Reserve Bank of Australia are expected to keep interest rates on hold at 1.5%, however their policy statement is expected to have dovish tones, as the growing risks may overshadow the growth seen lately.
On Wednesday, the US markets will be closed in observance of Independence Day. Back in the UK, the Services PMI for June will be released. Making up 80% of GDP, the Services PMI is expected to drop slightly to 53.9 from 54. The Eurozone are also expected to release their final reading of the services PMI. It is forecast to remain stable at 55. Italy, France and Germany will be releasing their individual readings of the PMI.
The focus will be on the US on Thursday, as the ISM Non-Manufacturing PMI is released. The PMI is expected to dip slightly to post 58.3. The ADP Non-Farm Employment Change will be released, forecast to post 190k, as the markets begin to guess the Non-Farm Payroll figure on Friday. The latest FOMC meeting minutes will also be released. Although many FOMC members have publicly spoken since the meeting last month, the minutes could provide more insight into the additional hike added to the dot plot for this year.
The markets will continue to focus on the US on Friday, as the latest readings for the US Labour data is released. Both the Unemployment Rate and Average Hourly Earnings are expected to remain static at 3.8% and 0.3% retrospectively. The headline reading, Non-Farm Employment Change is expected to drop very slightly from last month to 200k from 223k. Canada will also be releasing their Labour data. The Unemployment rate is expected to remain the same, with the net change in employment expected to increase to 20k from -7.5k.