Some Improvement in Risk Appetite

Investor sentiment was holding a firmer tone yesterday. This was reflected on European equity markets, with the main indices managing to finish the day in positive territory.

The Euro Stoxx 50 was up around 0.7%, while the FTSE 250 index (more UK domestically focused index than FTSE 100 and hence more sensitive to Brexit risk) gained 1.5% on the day. Meanwhile at the close on Wall Street last night, the mood was more subdued, with the S&P 500 flat on the day.

In terms of yesterday’s macro news, the two main UK releases of the day (industrial output and house prices) came in ahead of what the market had been expecting. Industrial output for May, fell by 0.5% in the month versus expectations for a 1% fall.

On currency markets, it has been a case of narrow range trading across the board since yesterday’s open. Sterling has managed to avoid testing new lows. The GBP/USD pair, which has experienced the sharpest post-referendum falls, traded in a $1.288-1.304 range. Meantime, EUR/GBP has spent most of the last 24 hours changing hands in the 85-86p band. Elsewhere, the EUR/USD pair has continued to trade in the $1.10-1.11 range.

Looking ahead to today, we get the key US data release of the week, indeed month, with non-farm payrolls for June due out. The weakness in jobs growth in April/May was one of the key reasons for the Fed holding off on increasing interest rates. The market consensus is for a 175k increase this month (from +38k in May) in the headline number. Signs that the pace of improvement in the US labour market is picking up, could help provide some upside to the dollar heading into the weekend.