UK DATA: Upward Revision To Services PMI, Sales Driven By Domestic Markets
Jul-03 08:34
The UK services PMI was revised up notably to 52.8 (vs 50.7 flash, 50.9 prior).
Highlights from the services PMI release:
- "Survey respondents attributed rising output levels to organic sales growth, supported by generally improving business and consumer spending"
- "Renewed improvements in overall sales volumes were driven by greater demand in domestic markets. In contrast, export sales decreased for the third month running"
- "June data pointed to a solid decline in employment numbers across the service economy"....". Anecdotal evidence suggested that elevated payroll costs and a lack of pressure on business capacity remained key factors leading to reduced hiring"
- "A sharp rate of input price inflation persisted in June, with 29% of the survey panel reporting an increase in their cost burdens and only 1% indicating a decline. However, the resulting seasonally adjusted Input Prices Index signalled that the overall pace of cost inflation eased to its lowest for six months."
- "A combination of weaker overall cost inflation and intense competition for new work led to another slowdown in prices charged inflation at service sector companies"
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FOREX: FX OPTION EXPIRY
Jun-03 08:26
Of note:
EURUSD 1.2bn at 1.1395/1.1400.
USDCAD 1.05bn at 1.3700.
AUDUSD ~1bn at 0.6400/0.6415.
EURUSD ~1bn at 1.1400 (wed).
USDCAD 1.68bn at 1.3725/1.3750 (wed).
EURUSD 2.24bn at 1.1400 (thu).
USDJPY ~1bn at 143.00 (thu).
EURUSD ~1bn at 1.1400 (fri).
- EURUSD: 1.1348 (1.16bn), 1.1350 (2.05bn), 1.1395 (307mln), 1.1400 (954mln), 1.1450 (871mln).
- USDJPY; 143.00 (581mln).
- USDCAD: 1.3700 (1.05bn).
- AUDUSD: 0.6400 (311mln), 0.6415 (672mln).
EUROPEAN FISCAL: French Fiscal Consolidation Intact; More Proposals Due In July
Jun-03 08:02
The 10-year OAT/Bund spread is currently ~67bps. That’s still well above the 40-50bps range seen before the snap Legislative Election announcement in May 2024, but below the 70bp handle that provided a floor for the spread through much of H2 2024 and Q1 2025.
- An unwind of immediate domestic political risks and post-Liberation Day tariff concerns has been supportive of spread narrowing, However, markets should still be cognizant that the Bayrou administration is held up by fragile cross-party agreements, which could unravel if future policy proposals ostracize one- (or both) end of political spectrum.
- The French budget deficit was E69.3bln in April, compared with E91.6bln in the same month last year. The improvement relative to 2024 was due to higher tax revenues (E99.6bln vs E69.7bln a year ago). The press release notes that “this difference is explained by the absence of recording of certain revenues collected at the end of April 2024, due to the temporary closure of the Chorus application” (Chorus is a government portal used for business-to-government transactions).
- Despite this caveat, current YTD tracking suggests budget consolidation continues to progress. However, more fiscal tightening is expected to be delivered for the administration to meet its 5.4% 2025 and 4.6% 2026 budget deficit targets.
- Speaking to BFM TV last week, Bayrou noted that the government will seek E40bln in spending cuts in the next budget, for which proposals will be presented in early July. It is unclear at present what measures might be included as part of the package. Bayrou did add he "could take up" the issue of "social VAT", which consists of compensating for reductions in contributions weighing on employment by increasing VAT."
EQUITIES: EU Bank Put Spread
Jun-03 08:01
SX7E (20th June) 200/185ps, bought for 3.75 in 6k.
