Financial market research and analysis

With just two days to go until the US-Sino trade war threats start to take effect, relations between the US and China remain hostile, rattling investors.  Further blocks and red tape this time on the likes of Micron Technology and China Mobile, highlighted the likelihood of increased friction between the 2 nations, as we move towards Friday’s US-imposed deadline. Tech stocks naturally came under significant selling pressure overnight, pulling the Dow & the S&P away from early energy inspired gains and into negative territory.

European markets rallied on Tuesday, with the FTSE and the Dax up 0.6% and 0.9% respectively. However, given the current tense global climate, any move higher is likely to be short-lived. The lower close on Wall Street overnight inspired a sea of red in Asian markets, which is leading to a lower start in Europe this morning. Volatility and volume could be lower on global indices as US markets are closed for a public holiday.

BRC shop price declines ease in June

The pound extended Tuesday’s gains overnight, breaking back through $1.32 as the BRC shop prices index declined again in June, but less sharply than in May. Prices fell by -0.5% rather the -1.1% the previous month, in a sign that pressure on the consumer continues to ease, albeit at a more moderate pace. Traders cheered the slowing rate by which inflation eased before refocusing their attention on the service sector PMI this morning.

Service sector PMI to lift GBP/USD to $1.33?

Service sector activity is expected to remain constant at 54 in June after rebounding in April and May from a notably weak March. Whilst 54 is below the average reading for 2017, it is still expected to be sufficient to give the Q2 GDP a decent enough boost of around 0.3%.

Stroger than expected manufacturing and construction PMI’s bode well for today’s figure. A surprise to the upside, making it a hattrick of stronger PMI prints, combined with last week’s better than forecast GDP reading could be enough to persuade the BoE that the UK economy can sustain a rate rise in August. In this scenario, the pound could target $1.33.

Theresa May summons her Ministers to the Chequers

Even if service sector activity is stronger than forecast, it may fail to capture investors’ attention for any significant amount of time. Brexit will be firmly back on the agenda, with the Prime Minister due to hold talks at the Chequers residence this weekend, in the hope of finding a solution to the customs partnership with the EU post-Brexit. Theresa May has made a series of pleas to her bickering party to sort out their differences and to the EU, not to decline the third proposal.

With the clock ticking until the Brexit deal October deadline and still a mind-boggling amount of uncertainties to resolve, the pound could find any service sector PMI inspired rally drastically limited by the lack of Brexit progress. Alternatively, a weaker than forecast services PMI print could see the pound plunge sharply lower, with Brexit uncertainty and concerns over the UK economy being too much for the pound to cope with, sending it back towards $1.31.