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• Decision on PEPP is more likely in October or even December as policymakers will have more clear picture of the impact of COVID Delta variant on Eurozone's economy 

eFXdata reports that analysts at MUFG Research see limited scope for further gains in GBP in the near-term perspective.

"The consensus amongst epidemiologists seems to be that a possible plateau in infections will be reached later in August. Hence, the evidence that the herd immunity strategy is working may not be available imminently. That could mean limited appetite for buying GBP over the short-term. The escalation of the UK-EU conflict over the Northern Ireland protocol is another reason to be cautious on the near-term outlook for GBP."

Preliminary data released by IHS Markit on Friday revealed that U.S. private sector business activity continued to expand strongly during July, albeit at a softer pace than in June.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) came in at 63.1 in July, up from 62.1 in May. The latest reading pointed to a record expansion in factory activity. Economists had expected the reading to decrease to 62.0. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. The growth in the headline index was supported by a quicker rise in new orders across the manufacturing sector, as new and existing customers ramped up their spending. Production grew at a slightly quicker pace despite further reports of material shortages. The pace of job creation accelerated to the sharpest for three months. On the price front, cost burdens saw the fastest rise on record amid stronger demand for inputs globally and a scarcity of materials. Subsequently, the rate of charge inflation accelerated to a fresh series high.

The Markit flash services purchasing manager's index (PMI) dropped to 59.8 in July, down from 64.6 in the previous month. This was the lowest reading since February. Economists had expected the reading to increase to 64.8. Contributing to the weaker expansion of business activity was a slower upturn in new business across the service sector in July. The pace of expansion was the least marked for five months, as some firms noted customer hesitancy amid noticeable increases in selling prices. Similarly, the rate of advance in new export orders eased. Although firms recorded a solid rise in employment, the level of outstanding business grew further in July as service providers struggled to keep up with incoming new business.

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 59.7 in July, down from 63.7 in June. This was the lowest reading since March.

“The provisional PMI data for July point to the pace of economic growth slowing for a second successive month, though importantly this cooling has followed an unprecedented growth spurt in May,” noted Chris Williamson, Chief Business Economist at HIS Markit. “Some moderation of service sector growth in particular was always on the cards after the initial reopening of the economy, and importantly we’re now seeing nicely-balanced strong growth across both manufacturing and services."

U.S. stock-index futures rose on Friday, as another raft of mostly upbeat corporate earnings afforded ground for further gains in equities.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Facebook (FB) target raised to $480 from $400 at Credit Suisse

Alphabet (GOOG) target raised to $3350 from $2755 at Credit Suisse

Starbucks (SBUX) upgraded to Outperform from Neutral at Robert W. Baird; target raised to $142

Statistics Canada announced on Friday that the Canadian retail sales decreased 2.1 percent m-o-m to CAD53.78 billion in May, following an unrevised 5.7 percent m-o-m plunge in April.

Economists had forecast a 3.0 percent m-o-m decrease for May.

According to the report, sales fell in 8 of 11 subsectors in May, accounting for 65.6 percent of total retail sales, led by lower sales at building material and garden equipment and supplies dealers (-11.3 percent m-o-m), clothing and clothing accessories stores (-11.2 percent m-o-m), furniture and home furnishings stores (-8.7 percent m-o-m) and motor vehicle and parts dealers (-2.4 percent m-o-m). Meanwhile, sales at electronics and appliance stores (+1.5 percent m-o-m), gasoline stations (+0.9 percent m-o-m) and food and beverage stores (+0.8 percent m-o-m) recorded gains.

Core retail sales, which excludes gasoline stations and motor vehicle and parts dealers, fell 2.4 percent m-o-m in May after plunging 7.6 percent m-o-m in the previos month.

In y-o-y terms, Canadian retail sales climbed 24.6 percent in May, following an unrevised 56.7 percent surge in April.

GBP depreciated against most other major currencies in the European session on Friday after the July PMI data pointed to a significant deceleration in business activity growth across the UK private sector amid a renewed surge in COVID-19 cases.

The IHS Markit and CIPS reported that the UK Composite PMI fell to 57.7 in early July from 62.2 in the previous month. This was the lowest reading since the easing of lockdown restrictions started during March. Economists had forecast the indicator to decrease only to 61.7. The details of the report revealed that new orders rose at the slowest pace for five months, while employment growth eased to its weakest since March, the degree of confidence decreased to its lowest since October 2020 and input cost inflation hit a record high. 

According to Chris Williamson, Chief Business Economist at IHS Markit, the UK economy’s growth in July was stifled by the rising virus infections, which “subdued customer demand, disrupted supply chains and caused widespread staff shortages, and also cast a darkening shadow over the outlook”.

James Smith, a Developed Markets economist at ING, notes that the latest UK purchasing managers indices, while still healthy, hint at an economic recovery that's stalling as Covid-19 cases rise. 

"The latest UK services PMI dipped noticeably in July, offering another hint that the recovery is effectively on pause as Covid-19 cases rise. The services index dipped to 57.8 from 62.4, while the manufacturing side was again held back by component shortages."

"Despite the rise in self-isolation rates over recent weeks, the effect on confidence has been less pronounced than we’d have expected - so far anyway."

"The major caveat when analysing much of this data is that it often pre-dates the noise surrounding self-isolation and the risk of getting pinged - much of which has really only emerged in the press over the past week or so. There’s little doubt this is rapidly amplifying worker shortages in a variety of sectors. And we may well begin to see more pronounced signs of people reducing socialisation over coming weeks."

"Still, the main takeaway when it comes to GDP is that this is very unlikely to be like the winter. In fact, we’re still likely to see a positive growth figure for the summer period. We’re expecting 1.5% growth in the third quarter (following roughly 5% in the second), including average monthly growth rates of 0.3% across June and August - though the risk there is clearly to the downside. Assuming the virus situation improves into the early autumn, then the economy will still likely be close (or maybe back) to pre-virus levels by the end of the year."

"However, there’s little doubt that further progress in the recovery really relies on Covid-19 prevalence falling again. It’s a reminder that the recovery is likely to be far from smooth."

Honeywell (HON) reported Q2 FY 2021 earnings of $2.02 per share (versus $1.26 per share in Q2 FY 2020), beating analysts’ consensus estimate of $1.95 per share.

The company’s quarterly revenues amounted to $8.088 bln (+8.2% y/y), missing analysts’ consensus estimate of $8.662 bln.

HON rose to $233.10 (+0.15%) in pre-market trading.

FXStreet reports that UOB Group’s FX Strategists suggest that AUD/USD is still seen navigating within the 0.7320-0.7450 band in the near term.

24-hour view: “... AUD rose to 0.7397 before closing on a firm note at 0.7384 (+0.33%). The advance appears to be running ahead of itself and but there is room for AUD to test 0.7415. A break of the major resistance at 0.7450 would come as a surprise. Support is at 0.7370 followed by 0.7350.”

Next 1-3 weeks: “Yesterday (21 Jul, spot at 0.7335), we highlighted that ‘downward momentum has waned somewhat but only a break of 0.7395 would indicate that 0.7270 is out of reach this time round’. AUD subsequently breached 0.7395 as it rose to 0.7397. Downward pressure has more or less dissipated and from here, AUD could trade between 0.7320 and 0.7450 for period of time.”

American Express (AXP) reported Q2 FY 2021 earnings of $2.80 per share (versus $0.29 per share in Q2 FY 2020), beating analysts’ consensus estimate of $1.62 per share.

The company’s quarterly revenues amounted to $10.243 bln (+33.5% y/y), beating analysts’ consensus estimate of $9.590 bln.

AXP rose to $177.97 (+4.14%) in pre-market trading.

Twitter (TWTR) reported Q2 FY 2021 earnings of $0.20 per share (versus -$0.16 per share in Q2 FY 2020), beating analysts’ consensus estimate of $0.07 per share.

The company’s quarterly revenues amounted to $1.190 bln (+74.2% y/y), beating analysts’ consensus estimate of $1.062 bln.

The company also issued upside guidance for Q3 FY 2021, projecting revenues of $1.22-1.30 bln versus analysts’ consensus estimate of $1.17 bln.

TWTR rose to $73.66 (+5.88%) in pre-market trading.

FXStreet reports that FX Strategists at UOB note that further rangebound trade is expected in USD/JPY in the short-term horizon, most likely between 109.50 and 110.70.

24-hour view: “Momentum indicators are still mostly ‘flat’ and further sideway-trading would not be surprising. Expected range for today, 109.95/110.40.”

Next 1-3 weeks: “Our update from yesterday (23 Jul, spot at 110.20) still stands. As highlighted, the outlook is mixed USD could trade within a 109.50/110.70 range for now.”

Eurozone PMIs recover brushing aside supply chain and delta concerns - ING

Bert Colijn, a senior economist at ING, notes that better than expected Eurozone PMIs confirm the strong rebound expected for 3Q.

"The composite PMI increased from 59.5 to 60.6 in July, which is the highest reading since 2000."

"Easing restriction measures are boosting service sector activity at the moment, but concerns about the spread of the Delta variant resulted in a somewhat weaker business outlook for the year ahead. The manufacturing PMI ticked down slightly as supply chain problems are biting and cause production to be delayed."

"Still, the picture painted by the survey is very rosy. Employment is rebounding quickly, new orders for manufacturing and services continue to grow rapidly, and reported recent activity ticked up in general, meaning that July has been a solid start to 3Q. The response to the Delta variant adds some uncertainty to the outlook, but expect the general direction of growth to be positive for now."

"The PMIs once again confirm significant pipeline inflation pressures, especially for goods. Of course, the ECB will consider this transitory as it has said before but expect the debate to become more heated in the months ahead when a decision needs to be made about the end of the PEPP programme."

Snap (SNAP) reported Q2 FY 2021 earnings of $0.10 per share (versus -$0.09 per share in Q2 FY 2020), better than analysts’ consensus estimate of -$0.01 per share.

The company’s quarterly revenues amounted to $0.982 bln (+116.2% y/y), beating analysts’ consensus estimate of $0.847 bln.

The company also issued upside guidance for Q3 FY 2021, projecting revenues of $1.07-1.085 bln versus analysts’ consensus estimate of $1.01 bln.

SNAP rose to $73.22 (+16.28%) in pre-market trading.

Intel (INTC) reported Q2 FY 2021 earnings of $1.28 per share (versus $1.23 per share in Q2 FY 2020), beating analysts’ consensus estimate of $1.07 per share.

The company’s quarterly revenues amounted to $18.500 bln (+1.6% y/y), beating analysts’ consensus estimate of $17.798 bln.

The company issued upside guidance for Q3 FY 2021, projecting EPS of $1.10 versus analysts’ consensus estimate of $1.08 and revenues of $18.2 bln versus analysts’ consensus estimate of $18.12 bln.

It also raised guidance for FY 2021, projecting EPS of $4.80 versus its previous guidance of $4.60 and analysts’ consensus estimate of $4.63 and revenues of $73.5 bln versus its previous guidance of $72.5 bln and analysts’ consensus estimate of $72.65 bln.

INTC fell to $55.00 (-1.72%) in pre-market trading.

FXStreet reports that FX Strategists still see USD/CNH consolidating within the 6.4400-6.5000 area in the next weeks.

24-hour view: “The quiet price actions offer no fresh clues and USD could trade sideways for today, expected to be within a 6.4600/6.4800 range.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (22 Jul, spot at 6.4660). As highlighted, USD is still in a consolidation and it could trade sideways between 6.4400 and 6.5000 for now."

Reuters reports that Beijing's crackdown on the misuse of import quotas combined with the impact of high crude prices could see China's growth in oil imports sink to the lowest in two decades in 2021, despite an expected rise in refining rates in the second half.

Shipments into the world's top crude importer and No. 2 refiner could be steady, or increase by up to 2% to just over 11 million barrels per day (bpd) this year, consultancies Energy Aspects, Rystad Energy and Independent Commodity Intelligence Services (ICIS) found.

That compares to an average annual import growth rate of 9.7% since 2015, and would be the slowest growth since 2001, China customs data showed. 

The flat forecasts coincide with plans by OPEC+ to raise oil output by 400,000 barrels per day between August and December. 

China has been the global oil demand driver for the last decade, and accounted for 44% of worldwide growth in oil imports since 2015, when Beijing started issuing import quotas to independent refiners.

While analysts expect global crude markets to stay in deficit this year despite the OPEC+ output rise, China's investigations into the trading of crude import quotas, and the resulting lower import allocations to independent refiners, have already cooled demand from the group that provides a fifth of China's imports.

CNBC reports that Belgian central bank governor and ECB member Pierre Wunsch - one of the more hawkish members of the ECBank - has sought to downplay the division seen at the ECB this week, saying that he is still supportive of accommodative policy.

“We all agree we want to be supportive in this phase of the recovery, we all actually want to go to 2% [inflation], so my dissent shouldn’t be dramatized,” Wunsch told.

Wunsch confirmed that he voted against the central bank’s new guidance on interest rates, announced on Thursday. He said he was reluctant to commit to the potential five or six-year time horizon for dovish policy to remain in place, in line with market expectations, given the possible risks that could force the central bank to change course.

Reports have suggested that Bundesbank President Jens Weidmann also voted against the changes.

Wunsch suggested that he may be “taking forward guidance too seriously,” and told that some of his colleagues at the ECB had suggested the guidance could be altered again should certain changes to financial conditions arise.

Reuters reports that a rally in the U.S. dollar has investors looking at a broad range of factors -- from global COVID-19 infections to yield gaps -- to determine whether the greenback will continue appreciating.

The dollar is up 4% from its lows of 2021 and is among the world's best performing currencies this year, boosted by last month's hawkish shift from the Federal Reserve, burgeoning inflation and safe-haven demand driven by COVID-19 worries.

Because of the dollar’s central role in the global financial system, its moves ripple out towards a broad range of asset classes and are closely watched by investors.

Some investors believe the dollar - a popular safe haven during uncertain times - will rise if the Delta variant of COVID-19 spreads and risk aversion grows in markets.

COVID worries have already helped the dollar notch gains against the currencies of countries where the Delta variant is proliferating, including the Australian dollar and the British pound. Those gains could fade if coronavirus concerns ebb in coming months, however.

Speculators' net short positions on the U.S. dollar fell to their lowest level since March 2020 last week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on July 16.

The dwindling bearish sentiment could mean there is less fuel for further dollar gains. At the same time, "the dollar and other currencies do tend to overshoot when they are correcting, in both directions," Schamotta said.

The Dollar Index's (.DXY) 50-day moving average is close to crossing above its 200-day moving average and forming a chart pattern known as a "Golden Cross" that is seen as a bullish signal by those who follow technical analysis.

A Golden Cross "could herald another leg higher for the greenback," said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Reuters reports that the European Central Bank's Survey of Professional Forecasters showed that euro zone growth and inflation could be higher this year and next than earlier predicted.

Inflation, targeted at 2% by the ECB, could hit 1.9% this year, above the 1.6% predicted three months ago while 2022 inflation is now seen at 1.5% as against 1.3%.

The longer term of 2026 inflation projection was raised to 1.8% from 1.7%.

In terms of growth, the survey now sees GDP expanding by 4.7% this year and 4.6% next year, upgrades compared to previous projections but broadly in line with estimates from the ECB's own staff.

According to the report from IHS Markit / CIPS, data signalled a sharp slowdown in business activity growth across the UK private sector. The speed of recovery was the weakest since March, with survey respondents widely reporting staff and raw material shortages due to the pandemic. Concerns about the loss of momentum contributed to the lowest degree of optimism towards the business outlook for nine months.

At 57.7 in July, the headline seasonally Flash UK Composite Output Index registered above the 50.0 no change value for the fifth consecutive month. However, the latest reading was down from 62.2 in June and the lowest since the easing of lockdown restrictions began during March.

Around 32% of the survey panel indicated a rise in business activity during July, compared to 16% that signalled a decline. Where growth was reported, this was attributed to looser pandemic restrictions, a boost to consumer spending from staycations, rising demand for business services, and strong order books in the manufacturing sector. Those signalling a drop in output mostly commented on severe shortages of raw materials and the impact of COVID-19 isolation on staff availability (some also cited extended absences as employees took up unused holidays).

Disruptions to business operations among clients contributed to weaker new order growth across the UK private sector in July. The latest rise in new work was the slowest in the current five-month period of expansion. Some firms cited a drop in business and consumer confidence due to the pandemic situation, while others continued to report Brexit-related difficulties with export sales. 

UK private sector firms remain optimistic overall about their prospects for business activity growth in the coming 12 months. That said, the degree of confidence dropped to its lowest since October 2020. Survey respondents reported concerns about the enduring impact of the pandemic, especially in relation to staff availability, while some manufacturers noted a natural slowdown as customers had brought forward orders due to supply shortages.

According to the report from IHS Markit, eurozone business activity grew at the fastest rate for 21 years in July as the economy continued to reopen from COVID-19 restrictions. The strongest rise in service sector activity for 15 years was tempered, however, by a slowing in manufacturing output growth, linked in many cases to worsening supply lines. Prices charged for goods and services meanwhile rose at a pace unseen prior to June as demand again outstripped supply. Backlogs of work rose at a joint-survey record rate amid capacity constraints. Business confidence meanwhile took a hit from rising concerns over the delta variant, pushing sentiment for the year ahead to a five-month low.

The headline Eurozone Composite PMI rose from a 15-year high of 59.5 in June to 60.6 in July, its highest since July 2000. The July reading indicated a fourth consecutive month of accelerating business activity. This acceleration of growth has coincided with a steady easing of COVID-19 restrictions from a peak in April to the lowest since the pandemic began in July. A further increase in demand was also recorded, boding well for the strong upturn to be sustained into August, as new order growth measured across both manufacturing and services accelerated to the fastest since May 2000. However, the recent surge in demand continued to put pressure on operating capacity to a degree unprecedented in the survey’s history. The resulting steep rise in backlogs of uncompleted work matched the record increase seen in June.

Finally, while July’s growth surge was commonly linked to the further easing of virus restrictions, business optimism for the outlook was stifled by growing worries about the delta variant. Expectations for output in the year ahead slipped from June’s record peak to the lowest since February, with lower optimism recorded across the board but slipping most notably in services and in France.

According to the report from IHS Markit, the German private sector maintained strong momentum in its recovery, with the survey’s headline index reaching a record high in July. Buoyed by strengthening demand and growing capacity pressures, firms took on staff at an unprecedented rate during the month.

On the price front, rates of increase in input cost and output charges showed a slight correction from May’s record highs, but nevertheless pointed to ongoing strong inflationary pressures as supply struggled to keep pace with demand.

July saw the headline Flash Germany PMI Composite Output Index rise from June’s 60.1 to 62.5, marking its highest reading since comparable data were first available in January 1998. The uptick in the index was driven by an ongoing rapid recovery in services activity, linked to the easing of virus containment measures and growing demand, with the respective seasonally adjusted index reaching a record high of 62.2 (services data were first collected in June 1997).

At 63.0, the Manufacturing Output Index remained in strong growth territory but slipped from June’s 65.2, amid reports from a number of companies of production levels being constrained by material shortages.

Manufacturing order books, by contrast, showed a further acceleration at the start of the third quarter, growing at the quickest rate since April. With services new business also increasing at a quicker pace in July (the second-fastest in the series history behind that seen in January 2011), the rate of growth in overall inflows of new work reached an all-time high.

Lastly, July data showed a slight easing of firms’ optimism towards year-ahead growth prospects. Expectations pulled back from a record high in June as both manufacturers and services providers reported reduced confidence about the prospect of activity rising over the next 12 months. That said, sentiment was still strongly positive by historical standards.

During today's Asian trading, the US dollar consolidated against the euro, but rose against the pound and the yen.

The attention of market participants turned to the upcoming meeting of the US Federal Reserve System, which will be held next week.

Meanwhile, the European Central Bank (ECB), following the results of its meeting on Thursday, expected to keep the base interest rate on loans at 0.0%, the deposit rate at -0.5%. At the same time, the ECB has outlined new guidelines for the future direction of monetary policy (forward guidance) in accordance with the recent revision of the strategy.

The ECB Governing Council expects that key rates will remain at current levels or lower until inflation reaches 2% significantly earlier than the end of the forecast horizon and will persist at this level until the end of the forecast period.

The Australian dollar fell by 0.15% against the US dollar, and reached its lowest level since the end of November 2020 on the background of the US dollar's growth and a decrease in risk appetite.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.08%.

FXStreet reports that in the opinion of FX Strategists at UOB Group, EUR/USD still risks extra downside in the next weeks.

Next 1-3 weeks: “On Wednesday, we highlighted that EUR ‘is under mild downward pressure and could edge lower but it is too soon to expect a move to the major support at 1.1700’. We added, ‘a break of 1.1835 would indicate the current mild downward pressure has eased’. There is no change in our view for now as EUR popped briefly to 1.1830 yesterday before dropping back down. From here, EUR could edge lower but it still appears too soon to expect a decline to 1.1700. On a shorter-term note, 1.1730 is already quite a strong support level. All in, the current mild downward pressure is deemed intact as long as EUR does not move above 1.1835 (no change in in ‘strong resistance’ level).”

EUR/USD

Resistance levels (open interest**, contracts)

$1.1877 (1659)

$1.1846 (210)

$1.1822 (102)

Price at time of writing this review: $1.1773

Support levels (open interest**, contracts):

$1.1737 (2052)

$1.1711 (5421)

$1.1677 (10601)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 6 is 63232 contracts (according to data from July, 22) with the maximum number of contracts with strike price $1,1700 (10601);

GBP/USD

$1.3934 (1243)

$1.3870 (995)

$1.3827 (658)

Price at time of writing this review: $1.3751

Support levels (open interest**, contracts):

$1.3706 (686)

$1.3680 (900)

$1.3649 (519)

Comments:

- Overall open interest on the CALL options with the expiration date August, 6 is 15446 contracts, with the maximum number of contracts with strike price $1,4000 (1889);

- Overall open interest on the PUT options with the expiration date August, 6 is 18755 contracts, with the maximum number of contracts with strike price $1,3400 (1680);

- The ratio of PUT/CALL was 1.21 versus 1.36 from the previous trading day according to data from July, 22

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.

RTTNews reports that survey data from the market research group GfK showed that UK consumer sentiment strengthened more-than-expected in July to reach ahead of its March 2020 pre-lockdown level.

The consumer sentiment index rose to -7 in July from -9 in the previous month. The expected reading was -8.

Among components of the consumer sentiment index, two measures were up in comparison to June, two measures were down and one stayed the same in July.

The assessment of the past personal financial situation fell to -1 from zero in June, while the outlook for the personal financial situation held steady at 11.

Consumers' view about the past general economic situation climbed to -43 from -47, while expectations for the general economic conditions worsened to -5 from -2.

According to the report from Office for National Statistics, retail sales volumes increased by 0.5% between May and June 2021, and were up 9.5% when compared with their pre-coronavirus (COVID-19) pandemic February 2020 levels. Economists had expected an increase of 0.4% compared to May.

The largest contribution to the monthly increase in June 2021 came from food stores where sales volumes rose by 4.2%, with anecdotal evidence suggesting these increased sales may be linked with the start of the Euro 2020 football championship.

Non-food stores reported a fall of 1.7% in sales volumes in June 2021 when compared with May 2021, driven by falls in household goods stores, such as furniture stores and clothing stores.

Automotive fuel sales increased by 2.3% over the month, as people continued to increase their amount of travel; however, they remain 2.1% below their pre-coronavirus pandemic February 2020 levels.

The volume of sales for the three months to June 2021 was 12.2% higher than in the previous three months, driven in large part by particularly strong sales in April when non-essential retailing re-opened; strong three-month growth was seen in non-food retailers and automotive fuel sales of 35.8% and 23.6% respectively.

The proportion of retail sales conducted online remains substantially higher than before the pandemic, but in June most retail sectors reported a fall in their proportions of online sales as consumers returned to physical stores; the total proportion of sales online decreased to 26.7% in June 2021, down from 28.4% in May 2021.