While European markets had a decent day yesterday with the German DAX closing at its best levels this year after some decent German economic data, the FTSE100 slid back below 7,000 again, dragged lower by the health care and oil and gas sectors.
The weakness in the pharmaceutical sector came about partly as a result of the prospect that two of the biggest mooted deals may well not happen, over concerns that European Union regulators could well block the Syngenta AG (LON:SYNNCHF) and ChemChina deal, which in turn could well throw sand in the wheels of Germany’s Bayer (DE:BAYGN) acquiring Monsanto (NYSE:MON). The prospect of a Clinton win in next month’s Presidential election also weighed on sentiment, given her recent comments about taking action on “price gouging” in the sector.
A weaker oil price also saw the oil and gas sector slide back after Iraq threw a potential spanner in the works with respect to arriving at an agreement with respect to an output cut or freeze. With Iran and Nigeria already excluded, the list of candidates who could potentially be happy to cut output appears to be getting smaller with every passing day, given that non OPEC member Russia has already ruled out joining in.
With the DAX near to its best levels this year, today’s focus will be on the latest German IFO business survey which enjoyed a decent rebound in September, after a soft August number. This September rebound is expected to be maintained in the October survey if yesterday’s decent PMI numbers are any indication, with a slight improvement to 109.60, from 109.50 expected. The DAX is also being helped by the recent weakness in the euro, in the last week or so, as it hit a six month low against an appreciating US dollar.
The rise in the US dollar, now at its highest levels since February, doesn’t appear to be causing as much angst as it was a month ago simply because recent earnings out of the US have been coming in ahead of expectations, particularly in the banking sector, where the prospect of a US rate rise in December is being treated as a good thing, where rates everywhere else are at record lows. The market is now assigning a 70% probability of a move in December, with next week’s Fed meeting not on the table, despite a widening Clinton poll lead.
The pound has seen somewhat of a stabilisation in the last few days, as the markets look ahead to this week’s Q3 GDP number. Yesterday’s CBI manufacturing data didn’t really move the dial that much on the pound despite a disappointing headline number, though some of the other detail was more encouraging.
With questions being asked about whether he will serve out his full eight year term as Bank of England governor, Mark Carney will be the focus of attention today as he speaks to the House of Lords economic affairs committee, ahead of next week’s rate decision and quarterly inflation report, where he is likely to face questions about the recent Brexit vote and the central Banks reaction to it.
EURUSD – continues to look weak and with 1.0950 behind it looks set for a move towards the trend line support at 1.0750 from the all-time lows at back at the beginning of the last decade. We need to push back above 1.0970 to stabilise and argue for a retest of the 1.1100 area.
GBPUSD – is currently struggling to rebound with any significant conviction with support back near the recent lows near 1.2100. We need to get back above the 1.2270 area to argue for a retest of the 1.2330 area. A break below the 1.2000 area has the potential to open up the previous flash crash lows at 1.1950, and possibly lower.
EURGBP – finding it difficult to recover back through the 0.8960 area, which raises the risk of a move back through 0.8870 to retest the 0.8780 area. A break back above the 0.8960 area retargets the highs last week at 0.9080.
USDJPY – continues to find resistance near the 104.30/50 area and while this caps the market the risk of a move lower below 103.00 remains a possibility towards 102.20. A sustained move through 104.50 could well see a move towards 105.70.
FTSE100 is expected to open 14 points higher at 7,000
DAX is expected to open 39 points higher at 10,800
CAC40 is expected to open 13 points higher at 4,565
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