Stock markets in Europe yesterday registered losses as traders remained fearful of the political standoff between the EU and Brussels. Neither side is willing to back down and seeing as Italy has the third biggest government bond market in the world, traders are very fearful this could trigger a an enormous debt crisis.
The coalition in Rome were swept to power for several reasons, one of which was to raise public spending in a bid to stimulate the economy. While the EU is a rules based organisation, and if Brussels bends the rules for Italy, it could be setting a dangerous precedent.
Italian retail sales will be released at 9am (UK time) and traders will be keeping an eye on the report in light of the poor services figures from the country yesterday. The Italian services PMI report slipped into contraction territory, and was the lowest reading since 2014. Mounting political pressure and a faltering economy is a dangerous situation. The eurozone retail sales report will be announced at 10am (UK time).
The US midterm elections were yesterday, and it is projected the Democrats will regain control of the House of Representatives, while the Republicans are tipped to maintain control of the Senate. The success of the Democrats will make life harder for President Trump, and it suggests that voters are not overly happy with his administration. The US dollar dipped over night as additional tax cuts seems less likely now that the Democrats are tipped to take control of the lower house.
The US and China are still no closer to reaching a trade agreement. The two sides are at loggerheads, and given that the Chinese economy is slowing down, the last thing they need is a protracted trade spat. Recently, Mr Trump’s attention has been on the midterm elections, and now that they are out of the way, we might hear more regarding China. Mr Trump and China’s President, Xi Jinping, have two meetings lined up for the G20 summit later this month. Asian equity markets posted small gains overnight as traders kept on eye on the US elections.
Sterling experienced volatility yesterday as varying reports about how well the Brexit withdrawal agreement was going was dong the rounds. There is was no clear message from Westminster. It was reported that Prime Minister May is still keen to obtain a deal, but not at ‘any cost’. Jeffrey Donaldson, of the DUP tweeted that it looks like we are heading for ‘no deal’, while Dominic Raab, the Brexit secretary gave a ‘thumbs-up’ when leaving Downing Street, which some political commentators took as a positive sign.
The oil market took another leg lower last night. The Energy Information Administration (EIA) maintained their global demand outlook for 2018 unchanged, but they lowered their demand forecast for 2019.
At the beginning of the week, the US reintroduced sanctions on Iran, but eight countries were exempt from the sanctions, and energy markets have been under pressure since then. The combination of sanctions and exemptions – which are bringing down the oil price, is the best of both worlds for President Trump. The EIA weekly oil and gas inventory report will be announced today at 3:30pm (UK time).
EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1.1300 area to be retested. A move to the upside could run into resistance at 1.1587 – the 100-day moving average.
GBP/USD – surged at the end of last week, and if the 1.3000 mark is retaken and held, it could pave the way for 1.3250 to be tested. If the market turns over again, it could target 1.2661.
EUR/GBP – has been pushing lower since August, and if it holds below the 200-day moving average at 0.8837, it might bring 0.8700 into play. A rally might encounter resistance at 0.9000.
USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 114.73. Support might be found at 111.39.
FTSE 100 is expected to open 28 points higher at 7,068
DAX is expected to open 66 points higher at 11,550
CAC 40 is expected to open 31 points higher at 5,106
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