The softness in sterling helped the London market rally on Monday. Traders will be keeping an eye on the UK construction purchasing managers index (PMI) at 9.30am, and the consensus is for 55 in June, and that compares with May’s reading of 56. The Bank of England has become more hawkish in the past couple of weeks, and dealers will be keeping an eye on economic indicators to try and determine if and when the UK central bank will lift off.
Homebuilders like Persimmon (LON:PSN), Redrow (LON:RDW), Bovis Homes (LON:BVS) and Taylor Wimpey (LON:TW) will also be sensitive to the UK construction data. The house builders have benefitted from the Bank of England’s loose monetary policy, and should that policy change, we could see a reversal of fortunes for the sector.
Oil continued its winning streak and the commodity is experiencing a comeback. The energy was already in an upward trajectory when US oil production dropped and the active rig count fell marginally. West Texas Intermediate (WTI) rallied for eight consecutive sessions – its longest winning streak since 2010. It’s worth pointing out that Brent crude and WTI saw large bounce backs in March and May, only to go on and create new 2017 lows after it.
US banking stocks formed the foundation of the rally in the US market. Recently Janet Yellen of the Federal Reserve declared that we will not see another banking crisis like the one that we witnessed in 2008 in our lifetime. Since all the American banks passed the second round of the Fed’s stress test, the sentiment surrounding the sector jumped. Not only is a clean bill of health something that investors find desirable, but US banks are now in a position to increase their capital returns to shareholders in the form of dividends and share buybacks.
The Federal Reserve are satisfied with the state of the US economy, and it has raised interest rates twice this year, and it plans to keep hiking them. Traders remain divided over how hawkish the Fed will actually be, as the US central bank has a history of actually being more dovish than they let on. Nonetheless, the chatter of further monetary tightening is also giving US banks a boost, as higher interest rates equates to higher profitability.
The US celebrates The Fourth of July Holiday today, and market volatility around the globe is likely to be low.
EUR/USD – 1.1300 is acting as support, and if it holds the resistance at 1.1400 and 1.1495 will be the next prices to watch. A drop back below 1.1300 could see it return to 1.1200.
GBP/USD – has dipped below 1.2977, and is receiving support at 1.2873 – the 50-day moving average. If the support holds, bulls will be looking to 1.3000 and 1.3047. A break below 1.2873 could bring the support at 1.2800 into play.
EUR/GBP – 0.8770 is providing support, and if the level holds the resistance at 0.8844 and 0.8880 will be the upside targets. A break below 0.8770 would bring the support at 0.8738 into play.
USD/JPY – is still above 113.00, and it is now acting as support, and bulls will be looking to the resistance at 114.36. A move below 113.00 will bring the 100-day moving average at 111.78 into play, and the next support level will be the 200-day moving average at 111.32.
FTSE 100 is expected to open 17 points lower at 7360.
DAX is expected to open 27 points lower at 12,448.
CAC 40 is expected to open 17 points lower at 5178.
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