European markets enjoyed another decent week, helped in no small part by last Wednesday’s agreement between President’s Trump and Juncker not to ramp up the trade tension any further, along with a US Q2 GDP number, which came in at its highest level since 2014 at 4.1%, while Q1 was also revised up to 2.2%.
Personal consumption helped drive the strong number, with a rise of 4%, well above expectations as the January tax cuts gave the US economy the boost most had expected. The bigger question revolves around whether this is as good as it gets, or whether we can sustain a 3% plus level of sustained economic expansion. If, as President Trump boasts, this is just the start then we can probably expect to see a much faster pace of tightening from the Federal Reserve over the next 12 to 18 months. We won’t get too many clues about that from this week's Fed meeting, other than a confirmation that we remain on course for another rate rise in September.
Despite the decent numbers from the US economy, US markets finished the day sharply lower over concerns that cracks are starting to appear in the tech earnings story that has help drive most of the recent gains in US markets.
A sharp fall in the Nasdaq, saw the index post its second successive weekly decline, as disappointing guidance from Facebook (NASDAQ:FB) and Twitter, following on from a poorly received update from Netflix (NASDAQ:NFLX) has caused some investors to question the basic assumptions around those company’s growth models, and whether they are sustainable at their current levels.
This is likely to see markets in Europe start the week on the back foot today, as we gear up for a data heavy week at the end of a month, which despite concerns about increasing trade tensions and slowing economic growth, has so far been a decent month for European stock markets.
Last week the DAX broke above its 200 day MA, while the Stoxx 600 closed at a six-week high, after the European Central Bank signed off for its summer break by playing down expectations that we’d see a rate rise much before the end of Q3 next year.
This week it’s the turn of the Bank of Japan, US Federal Reserve and the Bank of England to guide on monetary policy, and while no surprises are expected from the FOMC, we could get some policy tweaks from the Bank of Japan after last week’s interventions in the JGB market. We could also get a rate rise from the Bank of England on Thursday when they meet to run the rule over the UK economy and the latest inflation report.
We’ll also get to see a slew of economic reports from across the globe on how the manufacturing and services sectors are doing starting with China and Japan tomorrow, along with PMI data from across Europe, the UK and US, culminating with the US employment report for July at the end of the week.
EURUSD – trend line resistance at 1.1750 continues to cap the upside and while it does so the risk remains for a move lower, through 1.1620 towards 1.1500. If we do get a move through 1.1760 we could well see 1.1850, with support at 1.1620.
GBPUSD – last week’s rebound stalled at the 1.3220 area and as such we have slipped back a little but for now we’re holding above the 1.3070 area in the short term. While above this support the bias remains for a move towards the 1.3280 area on the back of last Friday’s bullish reversal.
EURGBP – found support above the 0.8860/70 are last week from the recent peak at 0.8970. We should now find resistance at the 0.8920 area with the risk we could see a move below 0.8860/70 and head back towards 0.8820.
USDJPY – found support at the 50-day MA at 110.50 last week before rebounding. This is the next key level that should dictate where the US dollar goes to next. We need to recover above the 111.70 area to retarget the 112.20 area.
FTSE100 is expected to open 40 points lower at 7,661
DAX is expected to open 75 points lower at 12,785
CAC40 is expected to open 38 points lower at 5,473
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