US markets went through another lacklustre session yesterday treading water near their all-time highs, with the absence of economic data probably explaining the absence of a catalyst one way or another. The losses seen on European markets earlier in the day barely registered as the divergence between Europe and US markets got wider, while the Japanese Nikkei 225 continues to rip higher.
Banks had a particularly difficult day across the board in Europe with UK banks hit on the back of the fines levied by regulators, while banks in Italy came under renewed pressure as the Italian bank reporting season continued.
Renewed reports of Russian troops crossing the Ukraine border also appear to have kept markets on the back foot, but given these reports are almost a daily occurrence you would have thought they would have lost the capacity to surprise by now.
European markets appear to still be looking towards tomorrows inflation and Q3 GDP numbers with respect to the next catalyst for another strong move, while the IMF “helpfully” reminded the ECB late last night it might have to do more if the inflation outlook weakens.
The IMF also warned of downside risks to its growth projections, a subject that is sure to be raised at the G20 this weekend in Brisbane Australia, as global leaders wrestle with a plan to help underpin growth, particularly in Europe for the next few years.
While these downside risks may be valid it is hard to see what the ECB, or any other central bank can do to help mitigate the continued fall in oil prices, which once again made four year lows last night after Saudi Arabia more or less stated that they were fairly relaxed about the current level of the oil price. Bank of England governor Mark Carney more or less admitted as much yesterday when he stated that inflation was likely to drop below 1% within 6 months in the UK, and not return to target for another three years.
Today’s final German CPI number for October is expected to confirm prices at 0.7%, and could well give some form of steer towards tomorrow final EU number which is expected to be confirmed at 0.4%.
Given all the chatter about splits in the governing council it might well be listening to the other German on the ECB council, Sabine Lautenschläger later this morning when she gives a speech in Stockholm, and who like Bundesbank chief Jens Weidmann is not a fan of QE.
After the slightly better than expected Chinese trade data earlier this week the latest Chinese industrial production and retail sales data for October continues to point to an economy that is running in fairly low gear, compared to recent norms, and is likely to reinforce expectations that the Chinese central bank will keep policy conditions fairly accommodative.
Industrial production for October came in at 7.7%, below expectations of 8%, while the efforts of Chinese authorities to rebalance their economy appear to be having little effect after retail sales came in at 11.5%, also below expectations of 11.6%.
Chinese authorities will no doubt be hoping that some of the Alibaba Group Holdings Ltd (NYSE:BABA) starts to rub off in the coming months after the success of this week’s singles day.
EURUSD – the euro continues to meander sideways between 1.2400 and 1.2500, with the recent 2 year low at 1.2358 keeping the prospect of a short squeeze on the table. We need to move above the highs this week at 1.2510 to target a move towards 1.2570, which we would need to move beyond to target 1.2800. This might delay the move towards 1.2040 and the 2012 lows.
GBPUSD – the pound’s slide continued yesterday after failing to push through 1.5940 we look to be heading towards the 1.5720 area. This is a key support and is 61.8% retracement of the entire 1.4810/1.7195 up move. We need to see a move beyond 1.5940 to suggest a move back towards 1.6070. If 1.5720 breaks we could well see a move towards 1.5430.
EURGBP – we look to be building up for a potential move higher but we need to break above 0.7900 to target 0.7940 level. Support remains at the 0.7800 level while a break below the 2012 lows at 0.7754 is the main obstacle to further declines towards 0.7690, the October 2008 lows.
USDJPY – we seem to be finding short term selling interest just above the 116.00 level for now as the momentum continues to build for a move towards 120.00. Given the recent strength of the up move it’s not unreasonable to expect a pull back before a move higher to 120.00, unfortunately picking the turning point is likely to be difficult, with support now at 113.80 and this week’s low.
Equity market calls
FTSE 100 is expected to open 6 points higher at 6,617
DAX is expected to open 36 points higher at 9,247
CAC 40 is expected to open 19 points higher at 4,199
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