European and US stocks suffered heavy losses yesterday as traders were rattled by the latest US ISM manufacturing reading. The August report was 49.1, while the September update dropped to 47.8 – its lowest reading in 10 years. The announcement triggered selling on both sides of the Atlantic.
Earlier on in the week, we saw the official Chinese manufacturing PMI report remained in contraction territory. Yesterday we saw the final reading of manufacturing PMI reports from major European countries, and it is clear that manufacturing in the Continent is also in contraction territory. The German and the UK readings were 41.7 and 48.3, respectively. The French manufacturing sector is barely expanding as the reading was 50.1.
Looking at the broader picture, it is fair to say that the worldwide manufacturing sector is in trouble. The US-China trade spat is having a knock-on effect around the globe, hence why we saw a sharp move lower in stocks yesterday. Trade talks between the US and China will continue next week, so traders will be paying close attention to any developments. The best dealers can hope for is a de-escalation in trade tensions, but it is obvious that the damage has been done.
Overnight, stocks in Hong Kong, as well as Japan, lost ground on concerns of a global slowdown.
The eurozone CPI rate slipped to 0.9%, from 1%, which underlies the dip in demand. Economists were expecting the reading to hold at 1%, but traders weren’t too phased as by the report as on Monday, Spain, as well as Germany, registered declines in CPI. Fears of a German recession continue to circulate, and the last thing the eurozone needs is a no-deal Brexit.
Today Prime Minister Johnson should set of his plans for the UK’s departure from the EU. The border on the island of Ireland will be in focus. Traders are likely to be nervous on the run-up to the announcement from Mr. Johnson as there is chatter it could make or break for the negotiations.
The US dollar was dragged lower by the poor ISM manufacturing update, which in turn lifted gold. The inverse relation between the metal and the greenback came in to play. The flight to quality play by traders was a factor too.
It was reported that OPEC output in September hit an eight-year low. The news kept oil prices in positive territory for some time after the weak ISM manufacturing, but eventually, the price was dragged into negative territory. Production in Saudi Arabia is back to levels seen before the drone strikes, so the supply concerns have disappeared. In light of the latest manufacturing numbers from major economies, it is no wonder the oil market sold-off.
At 9.30 am (UK time), the UK construction PMI report will be posted, and economists are expecting the reading to remain at 45.
The September ADP employment reading is tipped to be 140,000 would be a big drop from the 195,000 reading in August. The update will be posted at 1.15 pm (UK time).
At 3.30 pm (UK time) the energy information administration inventory report will be published, and US oil and gasoline stockpiles are expected to rise by 1.56 million barrels and 449,000 barrels respectively.
EUR/USD – remains in the wider bearish trend, and if the negative move continues, it might target 1.0800. A snapback might encounter resistance in the 1.1100 area.
GBP/USD – has been pushing lower for over one week, but if it holds the 50-day moving average at 1.2255 could pave the way for 1.2400 to be retested. A move to the downside might bring 1.2200 into play.
EUR/GBP – while it holds above the 200-day moving average at 0.8835 the outlook should remain bullish, and 0.9000 might act as resistance. A break below 0.8786, might put 0.8724 on the radar.
USD/JPY – rebounded in last August, and if it holds above the 107.08 area – 50-day moving average, it might bring 109.31 into play. Should the wider downtrend continue, it might retest the 106.00 area.
FTSE 100 is expected to open 30 points lower at 7,330
DAX is expected to open 13 points lower at 12,25
CAC 40is expected to open flat at 5,597
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