World bourses were risk-on overnight with Asian and European shares following in the footsteps of their US counterparts, all trading in positive territory on upbeat economic data from the US and China. The Dow and S&P closed at record highs on Tuesday, 16,998.70 and 1,973.22 respectively as manufacturing activity picked up in the US.   Hong Kong bourses, in particular, the Hang Seng rallied 1.55% and closed at its highest level since early December. Gains were limited for Europe as news that Orange has shelved plans to consolidate France’s telecoms market with Bouygues, Iliad and Numericable capped further advance.
In Europe, the euro was unsuccessful in breaching the 1.3700 handle, plagued by a soft bag of fundamental data of late. Euro zone manufacturing though remained in expansionary territory at 51.8 in June, it was its lowest print since November and producer price index released this morning warned of ongoing disinflationary pressures. Further, first quarter GDP for the euro zone came in line with expectations at 0.9% and looks to have stalled. Ahead of the ECB policy meeting tomorrow, the central bank is expected to stay on hold following the measures released in June and may hint at unsterilized asset purchases should inflation continue to disappoint. With the euro having gained 2 cents in three weeks, ECB President Draghi may engage in verbal intervention to “talk down†the euro as he has argued that a strong euro in a low inflation environment was cause for serious concern for the central bank.
The pound continues to outperform its peers on the back of solid fundamental data, reaching a new six year high of 1.7177, setting its sights on the 1.7200 handle. Construction figures for the month of June accelerated to 62.6 from May’s reading of 60.0 and was higher than the 59.5 anticipated, with home building leading the charge. Home prices in the UK soared to its highest in 27 years with the national average home price rising 11.8%, its biggest ascent since January 2005. Although home prices rose in all regions, London witnessed property values increase by 25.8%. Despite new mortgage lending controls introduced by the Bank of England in June where borrowers are not allowed to borrow no more than 15% of new loans and are subjected to a stress test to ensure that they can withstand a three percentage point increase in rates, it is unlikely to impact home prices in the short term. This set of data has once again fuelled speculation that the UK economy is on solid ground and the Bank of England could raise rates as early as this November.
Heading into the North American session, ADP employment report was stellar with 281,000 jobs created in the private sector, a precursor to Thursday’s non-farm payroll where the US economy is anticipated to add 215,000 jobs. Markets will now turn its focus to factory orders and Janet Yellen’s speech at 11 am on “Financial Stability†in an event hosted by IMF’s Director Christine Lagarde where Yellen is expected to maintain a dovish tilt.
The Canadian dollar has remained resilient despite Monday’s weak GDP print of 0.1% in April as it is supported by broader USD weakness, improving global backdrop (evidenced by China’s manufacturing output at 51.0 in June) and higher inflation at home.  Softness in crude prices in the last ten sessions has not dampened loonie strength. The economic calendar for Canada is sparse the remainder of the week and USD/CAD is likely to take its cues from broader market themes.
Further reading:
GBP/USD: Trading the US Non-Farm Payrolls
ADP employment report
