JAPAN DATA: July PMIs Mixed, Manufacturing Back Into Contraction, Services Rise
Japan preliminary July PMIs were mixed. notably manufacturing fell to 48.8 from 50.1 in June. Services rose though to 53.5 from 51.7. This left the composite index at 51.5, unchanged from the June read.
- For manufacturing the index back in contraction territory but still above recent lows (48.4 from March this year). In terms of the detail, output slumped to 47.6 from 51.2 in June. New orders were also down June levels.
- Focus will be on how sentiment reacts to the recent tariff deal announcement between US and Japan, with the 15% auto tariff rate generally seen as a win. Hence today's softer manufacturing PMI read might not be sustained, or at least the start of a fresh downtrend in the sector.
- On the services side, we are back close too earlier 2025 highs for the index.
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FOREX: AUD Crosses - AUD Bounces As Risk Cheers Ceasefire
A combination of some dovish Fed speak and a muted and well contained Iranian response to the US bombings have seen a complete reversal in the risk backdrop. President Trump's announcement of a ceasefire this morning has seen these moves extend in early Asian trading, ESU5 +0.50%, NQU5 +0.70%. The AUD has found some support in the crosses as a result.
- EUR/AUD - Overnight range 1.7890 - 1.7991, Asia is currently trading around 1.7905. The pair topped out towards the 1.8000 area, it has had a good run higher and if risk manages to build on this platform we could see some consolidation in the near term. First support seen back towards the 1.7700 area.
- GBP/AUD - Overnight range 2.0912 - 2.1024, Asia is trading around 2.0910. This pair failed on yet another attempt to break above 2.1000. A break above 2.1050 is needed to see the move higher once more gain momentum, like EUR/AUD though a more positive risk backdrop could see more consolidation within its recent range of 2.0500 - 2.1050.
- AUD/JPY - Overnight range 93.87 - 94.68, Asia is trading around 94.35. Choppy price action as the pair establishes a range between 92.00 - 96.00. Should risk build on this move, focus could turn back to the 96.00 area.
- AUD/NZD - Overnight range 1.0803 - 1.0841, the cross is dealing in Asia around 1.0805. The cross is struggling to get any momentum back above 1.0800 for now, it needs to hold above here and start extending higher to put a higher low in place. The longer it fails to extend higher the more likely it begins to drift lower again, a break sub 1.0750 will see downward momentum return.
Fig 1: GBP/AUD spot Hourly Chart
Source: MNI - Market News/Bloomberg Finance L.P
US STOCKS: Dips Remain Supported, Focus Turns To All-Time Highs
The ESU5 Overnight range was 5993.25 - 6081.50, Asia is currently trading around 6107. A combination of some dovish Fed speak and a muted and well contained Iranian response to the US bombings have seen a market poised to correct lower completely reverse, and is now again eyeing the all time highs. President Trump's announcement of a ceasefire this morning has seen these moves extend in early Asian trading, ESU5 +0.50%, NQU5 +0.72%.
- Lance Roberts on X: “Sentiment and positioning remain neutral across the spectrum of professional investors. Given the underweight conditions, it is unsurprising the market is not reacting negatively to the Iran news this morning.” See Graph below.
- (BBG) - “The S&P 500’s sharp rally has created an extraordinary deviation -- one of the widest gaps in years -- between macro fair-value models and actual market prices, and closing it would likely require a rarely achieved leap of 30% in earnings over the next year or significant Federal Reserve easing, according to Bloomberg Intelligence.”
- A quite remarkable turnaround for stocks, again points to a market that is still underweight as dips continue to be well supported. This in the face of some well documented headwinds that have been building. These include :
- Share buybacks are now in their blackout period, will the absence of this large underlying bid reportedly around $40 billion a week, allow for some sort of a retracement.
- This together with what looks to be some large month-end rebalancing should provide some decent headwinds for US Equities in the short-term.
Fig 1: Equity Positioning
Source: @LanceRoberts
LNG: Gas Starts Week Lower, US Prices Down Today On Ceasefire News
European natural gas jumped at the start of Monday’s trading to EUR 42.44 but then trended lower through the day as markets relaxed as oil and gas infrastructure has been avoided in Iran-Israel strikes. The closure of Qatari airspace halted the sell off but in the end Iran’s response to US attacks on its nuclear facilities was muted. Gas is likely to trade lower when it opens following news of a ceasefire deal. US Henry Hub is down 0.8% so far today.
- European gas prices fell 0.7% to EUR 40.65 yesterday but are still up almost 19% in June. Initial support is at EUR 37.49, 20-day EMA. Europe remains vulnerable to global supply disruptions as it refills storage ahead of next winter.
- US gas fell 4.4% to $3.68 to be up 6.7% this month and is down 0.8% to $3.67 today but off a low of $3.65. It is now 16.8% lower than Friday’s high at $4.15. Warmer weather expected for the eastern US should provide support to prices but with robust inventories any spike in cooling demand is unlikely to drive gas sharply higher. Temperatures are forecast to fall in much of the US over July 3-7, according to Vaisala.
- Officially, Iran will begin the truce in 6 hours allowing all planned missions to take place followed by Israel “upon the 12th hour”.
- Iran responded to the US attacks on its nuclear facilities on the weekend by targeting its base in Qatar. It notified Qatar first though and the missiles were intercepted causing little damage. VP Vance said that the move was “symbolic”.
