European stock markets had a mixed day yesterday as some the global bullish sentiment wore off. The main mover was the Italian market as the EU said it will commence disciplinary proceedings against Italy for not playing by the fiscal rules. The administration in Rome are running a budget deficit in the hope of boosting economic output. Italy’s economy recently emerged from a recession, and policymakers are keen to keep the economy motoring along. Matteo Salvini, the joint deputy prime minister said the EU respect the government’s growth focused plans. The EU might end up fining the Italian government for not complying, and if the situation comes to that, we are likely to see pressure on the fragile Italian debt market and in turn the domestic banking system.
The US indices were largely positive and the upbeat momentum continued from Tuesday’s impressive run. There was a little blip in the US index futures market before the cash trading session began, as the ADP (NASDAQ:ADP) employment update showed that only 27,000 jobs were added in May, and economists were expecting 180,000.
It was a shock to say the least, but the announcement can be interpreted a couple of ways. It might suggest that employers are worried about the state of the US economy, and are not keen to hire staff. The unemployment rate is at a 50-year low, so firms might be finding it tough to attract new staff. The average earnings component of the Friday’s non-farm payrolls will be of particular importance as it will offer a clue of the strength of the US labour market.
The Beige Book said the US economy grew by a ‘modest pace’, which was slightly more upbeat than the previous update. There was some evidence that business investment dipped on account of the trade spat with China, and hiring was held back by a ‘tight’ labour market. The Dow Jones, S&P 500 and NASDAQ 100 all posted respectable gains last night. The Asian trading session was a little mixed.
The US dollar index had a volatile session yesterday. The greenback took a knock post the ADP report, but managed to reverse the losses, and it was pushed higher by the ISM non-manufacturing reading, which was 56.9, and it was an improvement on the April reading of 55.5. The economic report shows there are some aspects of the US economy that are still growing.
Brent crude and WTI incurred major losses yesterday on the back of the Energy Information Administration report. The announcement showed that US oil stockpiles surged by 6.77 million barrels, while traders were anticipating a decline of 849,000 barrels. Gasoline inventories jumped by 3.2 million barrels, and the consensus estimate was for a build of 630,000 barrels.
The enormous build in energy stockpiles comes at a time when there are fears about future demand levels given global trade tensions, and a slowing of worldwide manufacturing. Earlier in the week, Mike Pompeo, the US secretary of state said negotiations with Iran could begin without any preconditions, and that put downward pressure on the oil market as it suggests the US could soften its stance with the oil producing nation.
Mark Carney, the head of the Bank of England, will speak at the Institute of International Finance Spring Membership Meeting in Tokyo, and the notes will be published at 9.55am (UK time).
At 10am (UK time) the eurozone will release the revised the first-quarter GDP update, and the consensus estimate is 1.2%.
The European Central Bank will announce its interest rate decision at 12.45pm (UK time) ,and dealers are expecting the refinancing rate and the deposit rate to hold steady at 0.0% and -0.4% respectively. The press conference that follows at 1.30pm (UK time) will be the main event, and in light of the sizeable drop off in inflation, traders will be expecting more details about the new targeted lending scheme that is planned to begin in September.
The US jobless claims report will be revealed at 1.30pm (UK time), and dealers are expecting it to remain unchanged at 215,000.
EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might target the 1.1000 area. Resistance might be found at 1.1322.
GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at the 1.2476 region. The 1.2800 area might act as resistance.
EUR/GBP – has rebounded for over three weeks, and if it holds above 0.8800, it might bring 0.8939 into play. A move to the downside might bring the 50-day moving average at 0.8660 into play.
USD/JPY – while it holds below the 100-day moving average at 110.59, its outlook should remain bearish, and support might be found at 107.51. A rally might target the 110.00 region.
FTSE 100 is expected to open 4 points higher at 7,224
DAX is expected to open 2 points higher at 11,982
CAC 40 is expected to open 3 points higher at 5,295
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