China PMI, M&A Deals, and Crude Prices Influence Market Sentiment

Market sentiment was weighed down by China's Services PMI hitting its lowest level this year, while European equities received a boost from a flurry of mergers and acquisitions (M&A) deals. Additionally, crude prices rose on supply cuts, albeit failing to reach Monday's high.

Key Factors for Today

• China's Services PMI Concerns: China's private Caixin services PMI for June fell to 53.9, marking the second-lowest reading this year. The lower-than-expected figure raised concerns about the world's second-largest economy.
• European Equities Driven by M&A Deals: European indices surged as several M&A deals were announced, including a partnership between OMV and Abu Dhabi to create a $30 billion chemicals and plastics company. However, a drought threat to Europe's logistics arteries loomed, with water levels on the Rhine River hitting the year's lowest point.
• Crude Prices Reflect Mixed Sentiment: While WTI crude prices advanced by 1.25% following production cuts by Saudi Arabia and Russia, Brent prices remained relatively subdued. Traders appeared cautious due to concerns over global economic growth outweighing the impact of supply cuts.
• Yen's Uncertain Position: The Nikkei experienced a downturn, leading to profit-taking, while the USDJPY hovered just below the 145 handle. Market participants speculated that breaching this level might prompt Japanese officials to intervene to support the currency.

Market Movers

• Gold Shines Amid Risk-Off Mood: Gold prices continued their upward trajectory, completing a four-day winning streak and reaching a fresh one-week high at $1930/oz. The risk-off sentiment and trade tensions contributed to the precious metal's ascent.
• Euro Weakens on Risk-On Sentiment: The EUR/USD pair dipped below the $1.09 handle as the market favoured risk-on mode, driving equities higher. The decline opened the door for a potential drop to $1.0824.
• Crude Prices Show Mixed Performance: WTI crude rose by 1.73%, benefitting from supply cuts, while Brent crude declined by 0.42%, staying below Monday's high of $71.75/bbl. Traders appeared hesitant, reflecting concerns about global economic growth impacting demand.

Economic Calendar

• HCOB Services PMI Final
• S&P Global/CIPS Services PMI Final
• FOMC Minutes
• Fed Williams Speech
• API Crude Oil Stock Change

The Big News

China's Caixin services PMI delivered its weakest reading since the beginning of the year, posing concerns about the country's economic outlook. Trade tensions heightened as China cancelled a visit from the top EU diplomat, causing market uncertainty. Meanwhile, European equities surged on the back of M&A announcements, with OMV and Abu Dhabi joining forces to establish a significant chemicals and plastics company. However, Europe faced a new challenge as drought threatened critical logistics infrastructure, causing water levels on the Rhine River to reach a yearly low.

With WTI rising on the news of production cuts by Saudi Arabia and Russia. In contrast, Brent prices remained somewhat subdued. Traders interpreted the production cuts as a sign of concern over slowing demand, ultimately emphasizing the significance of global economic growth in shaping the market. Furthermore, the Japanese yen teetered just below the intervention line at 145.00, with the Nikkei experiencing a downturn, potentially prompting officials to take action to support the currency.