US ISM-PMI and Lagarde's Speech in focus
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US ISM-PMI and Lagarde's Speech in focus

Major markets were steady near low levels on Tuesday amid easing inflationary concerns, while the dollar regained strength below 94 ahead of the US ISM PMI report.

Oil prices reached their highest level in more than six years as OPEC+ decided to maintain output increases slowly despite demand recovering as the delta-variant Covid-19 wave ebbed.

Global cases hit their lowest in nearly two months on Monday, according to Johns Hopkins data.

Yet investors remained cautious due to worries that a rally in energy prices and a supply chain disruption could derail the economic recovery, just as the US Federal Reserve is moving toward reducing its massive stimulus.

European Purchasing Managers' Index (PMI) for September fell to 56.2, from 59.0 in August, only slightly above a flash estimate of 56.1, but still well above the 50-point threshold.

Earlier in the month, the eurozone manufacturing PMI showed growth remained robust in September. Still, the pace of expansion slowed in the bloc's dominant service sector as well because of supply chain disruption.

PMI for the services sector also fell to 56.4 from the previous 59.0, its lowest since May, while the new business index dropped to 55.3 from 57.9.

Service sector growth remains strong, but the pace is slowing. Despite the positive momentum, inflationary pressures and supply chain disruptions pose a threat.

While Germany's services industry grew strongly in September, the recovery from the pandemic lost momentum with the waning catch-up effects and more companies experiencing supply shortages.

Services growth slowed in France as inflationary pressures and COVID-19 protocols impacted businesses. The growth of services was also slower in Italy and Spain.

Meanwhile, the economic recovery is still holding up in Britain, although prices have risen dramatically, supporting inflationary trends.

It is the first time the Purchasing Managers' Index (PMI) has not fallen since May when the IHS Markit composite index was revised up to 54.9 from 54.8 in August.

The reading was also higher than the preliminary estimate of 54.1 for September.

However, this was the slowest growth in new orders since before the lifting of Coronavirus lockdowns in early 2021 due to a lack of staff, raw materials, and transportation.

Since there will probably still be shortages of fuel and food in the fourth quarter of this year, one could say that the GBP remains on fragile ground. THIS WEEK, strong US data could lead to a retest of the 1.34 zone and a continuation of September's decline for the pound.

Events of the day

According to the ISM non-manufacturing PMI, US economic activity in the services sector is expected to have declined to 60 in September from 61.7 in August. The data come out at 17:00 EEST.

ECB President Christine Lagarde's speech at 18:00 EEST will be the main focus in the eurozone today. Given the recent spikes in CPI, it remains to be seen whether the ECB will begin to acknowledge that their current forecasts underestimate inflation.

Lagarde is unlikely to significantly diverge from such a cautious tone based on recent ECB communications.