Intraday Market Thoughts

Sentiment Remains Negative Ahead of PMIs

by Kyle Morrison
Aug 3, 2011 9:05

Debt fears put Europe in spotlight as Spain and Italy come under attack, weak UK Services PMI could provoke stimulus debate, AUD retail sales slide, Chinese services PMI, US ADP.

Fiscal fears about the political leadership in both Italy and Spain has seen investors head for the exits. Concerns about the leadership in Italy and the relationship between Berlusconi and his finance minister Tremonti, combined with Spanish PM Zapateros decision to delay an election until November has thrown the proverbial dice into the air, in this game of poker between the markets and EU politicians.

There is also the realisation that the EFSF is in no fit state to handle a crisis in two of Europes largest economies and this has seen Spanish and Italian 10 year bond yields push above 6% and stay there, as the 7% level slowly comes into view on the horizon. The 7% level remains the line on the sand where ultimately Greece, Ireland and Portugals borrowing costs became unsustainable.

Todays economic data releases arent likely to offer much comfort with Euro zone services PMI for July expected to hold steady at 50.8. Retail sales for June arent expected to improve matters much either, with a gain of 0.5% expected after Mays 1% decline, in continued signs of consumer retrenchment as the sovereign debt crisis continues to constrain confidence.

In the UK a weak services PMI number could well reignite the stimulus debate ahead of tomorrows Bank of England meeting. Yesterdays construction PMI for July surprised to the upside, but given that services makes up 70% of the UK economy it is this number which will bear the most scrutiny. Expectations are for a small decline to 53.2, from 53.9 and the Chancellor will be hoping that the numbers come in pretty near to expectations.

In Australia retail sales for June slumped 0.1%, underlining the RBAs rather dovish outlook earlier this week and sending the AUD sharply lower.

Fears of a slowdown in economic activity in China continue to weigh on risk after official services PMI and HSBC Services PMI, once again showing conflicting signs, but the HSBC measure, which is probably the more reliable slipped back to 53.5, from 54.1 the previous month.

US markets will be looking for some welcome good news after yesterdays shock fall in personal spending sent stock markets spinning to close at 2011 lows with the release of July ADP figures.

In amongst all this uncertainty gold continues to surge hitting new all time highs against the US dollar, euro and the pound.


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