Investors over in Europe aren't ignoring the bout of risk aversion triggered by North Korea' ongoing missile tests. The geopolitical tensions remain a major threat for the global stability and economic health and traders would not ignore this fact, hence they would remain vigilant.
Commodity Currencies Praises Chinese Data
The Chinese Caixin Services PMI data remains the focal point because of the slowing services activity during the month of June however, the final reading still shows that the economy is expanding. The data released confirmed a slowdown in new orders however the demand equation is still relatively sturdy.
The June business activity index also dampened the growth outlook picture as the number fell from a four-month high of 52.8. The final reading came in at 51.6. Nonetheless, the net effect of all economic analyses released this week does confirm that the silver lining is still there and the Chinese economy is not in distress. In fact, there are more positive signs that the economy is in expansionary mode.
One of the way to see how traders perceive the data out of China is the impact on the Australian dollar which is heavily depended on the Chinese growth. The Aussie dollar fetched some gains overnight on the back of this number stamping the fact that the outlook for key commodity export country is not in jeopardy.
It is important to keep in mind when you look at the Chinese economy that services sector has major significance amid traders because it provides that comfort cushion about the stability and expansion of domestic consumption.
Could Glas Glut be Coming?
Away from China, the oil glut which had the oil price tumbling, the recent conflict between Saudi Arabia and Qatar could create a similar situation in gas supply as well. Qatar has a major dominant position in gas production and the country is without any doubt facing a major battle to protect its economic health. The announcement of boosting the gas production from its mammoth North Field, not only escalates tensions between the two countries, because it shares this field with Iran, but also present a threat for the gas price too.
It is the world's second biggest natural gas field and well capable of moving the pendulum for the gas supply. For the time being, there are not concerns about this, but make no mistake, a lower gas price is going to make the situation a lot more dire for crude oil. It would exert more pressure on OPEC numbers to go after larger cuts. We know that several key officials in Russian government have turned their back to the idea of larger cuts. Therefore, the recent situation under which rating agency Moody has cut the country's outlook to negative going to avert foreign investment and Qatar would have to explore other avenues which include expanding its gas production.
Bar is Lower For Services PMI and A Dire Number Would Sting Sterling
Back in the UK, it is the services PMI data that everyone has their eyes on. After a dreadful manufacturing PMI number, the last thing you want to see is another dire set of economic number. Particularly the services PMI number which has a significant influence towards the UK GDP. Inflation is going to play a vital character because a lower number would endorse higher inflation is squeezing consumers. We do expect the today's number to be more moderate and it could be slightly ahead of the forecast which 53.9. Last month's number was 54.4 so the bar is already lower hence a miss of the headline number ain't going to help sterling.