Equity markets in Europe, as well as the US, lost ground yesterday as traders were concerned about the state of the US-China trading relationship. Chile’s decision to cancel the APEC summit that was due to take place later this month was only deemed to be a minor setback as the US-China relationship as it was moving in the right direction.
There was a minor issue in the process when it emerged that some people in the Beijing administration were concerned that President Trump is unpredictable. That concern was matched with a hesitance to move towards signing a trade deal. The news gave traders an excuse to take some money off the table.
European equity markets enjoyed a rally last month, and the S&P 500 set a record high this week, so the nerves from Beijing regarding trade acted as a profit-taking excuse. A report was doing the rounds that some negotiators were worried that a comprehensive trade deal is never going to be completed. The US-China trade spat has been going on for over one year, so ebbs as flows can be expected.
The economic reports that were released yesterday painted a downbeat state of the global economy. The Chinese manufacturing sector remained in contraction territory as the manufacturing PMI report was 49.8, while the services sector showed a low rate of expansion. Headline inflation in the eurozone dipped to 0.7% from 0.8%, plus the unemployment rate ticked higher, so you can see why the ECB is re-starting the quantitative easing scheme this month. In the US, the Chicago PMI reading dropped to 43.2 – it’s lowest in over three years. The data points to pockets of weakness around the world.
The non-farm payroll report will be closely watched. The announcement will be posted at 12.30 (UK time), and the headline figure is expected to be 89,000, which would be a decline from the 136,000 posted in September. Unemployment is tipped to creep up from the 50-year low of 3.5% to 3.6%. Average earnings are expected to edge up to 3% from 2.9%.
Broadly speaking, the number of jobs being created has been growing at a slower pace in the past six months. It could be a sign the US economy is cooling, or else it might be because the labor market is close to topping out. The average earnings component will be in focus too, as workers who earn more tend to spend more. Also, a move higher could sign the jobs market is tightening.
Overnight, the Caixin survey of Chinese manufacturing was released, and the reading was 51.7, while economists were expecting 51. The September reading was 51.4. Stock markets in Asia are mixed as the improvement in Chinese manufacturing is being balanced out by trade concerns.
The UK manufacturing PMI reading will be posted at 9.30 am (UK time). The consensus estimate is 48.1, which would be a decline from the 48.3 in the previous update. The past five reports have shown the sector is in contraction territory as Brexit anxiety has taken its toll on the industry.
At 2 pm (UK time), the ISM manufacturing report will be released, and traders are expecting a reading of 48.9, which would be a bounce back from the 10-year low of 47.8 registered in September.
EUR/USD – has been driving higher since the start of the month, and a break above 1.1200 might put 1.1249 on the radar. A move lower might bring the 50-day moving average at 1.1038 into play.
GBP/USD – remains in the recent aggressive upward trend, and a sizeable break above the 1.3000 area might bring 1.3178 into play. A move lower might put the 200-day moving average at 1.2712 on the radar.
EUR/GBP – is still in the bearish trend, and a break below 0.8575 could pave the way for 0.8471 to be targeted. If it manages to hold above the 0.8600 marks, it might retest 0.8786.
USD/JPY – while it holds above the 50-day moving average at 107.63, it could target 109.31. A move back below the 50-day moving average might bring 106.48 into play.
FTSE 100 is expected to open 34 points higher at 7,282
DAX is expected to open 78 points higher at 12,944
CAC 40 is expected to open 28 points higher at 5,758
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