The Dow Jones and S&P 500 hit all-time highs yesterday as fears surrounding the US-China trade standoff subsided. The tariffs that were announced by both sides during the week were deemed to be not as harsh as originally suspected. The US in particular showed restraint, but that was partially so the Trump administration would have more ammunition should they feel it is required down the line. Now that the latest series of tariffs are out of the way, investors fell back into their bullish routine. Stock markets in Asia overnight were dragged higher by the positive move on Wall Street. Japan’s nationwide core CPI rate rose to 0.9% on an annual basis, but it remains well below the Bank of Japan’s 2% target. US-China relations have soured a little more as Washington DC have imposed sanctions on the Chinese military for buying missile systems and fighter jets from Russia.
Sterling had a stellar run yesterday after the UK reported stronger-than-expected retail sales figures. The August report showed that growth was 0.3% on a monthly basis, while economists were expecting a decline of 0.2%. The July report was revised higher to 0.9%, up from 0.7%, which was an added bonus. The reports ties in with the solid, GDP, unemployment, construction and earnings data we have seen from the UK in recent weeks. The UK public sector net borrowing report will be released at 9.30am (UK time), and economists are predicting a deficit of £2.85 billion, and keep in mind July registered a surplus of £2.87 billion.
The Brexit talks continue and even though there were some conflicting reports about the state of play, the updates couldn’t; hold back the pound. As with any EU summit there are dozens of soundbites, and but the message wasn’t optimistic. Germany’s Angela Merkel said more work needs to be done, and Theresa May showed Brussels she means business as she is preparing for a ‘no deal scenario’.
Political turmoil could be on the horizon in Italy as Luigi Di Maio, the joint deputy Prime Minister, threatened to pull out of the coalition government if the funds can’t be found to implement some of the Five Star Movement’s key policies. There has been pressure on the Rome administration to adhere to EU budget restrictions, and but Mr Di Maio wants to ignore the recommendations and cut taxes and boost public spending. Political rumbling in Italy could rattle the entire eurozone banking sector.
This morning France and Germany will release the flash manufacturing and services PMI reports. At 8.15am (UK time) French manufacturing and services will be released, and the consensus estimate is 53.3 and 55.2 respectively. At 8.30am (UK time) German manufacturing and services reports will be announced, and economists are expecting 55.7 and 55 respectively.
Mr Trump expressed his anger at the relatively high oil price, and called OPEC a ‘monopoly’. The US leader said many Middle Eastern countries are depended on the US for security and safety, and claimed the high oil price isn’t fair. Ultimately, Mr Trump would like countries in the region to boost production in order to lower prices, but seeing as some nations are at maximum capacity, that may not be possible.
The Bank of Canada (BoC) has a track record of trailing the Federal Reserve, and seeing as the US central bank is widely expected to hike interest rates next week, it might spark speculation about a possible rate hike from the BoC in October. At 1.30pm (UK time) Canada will release the inflation report, and traders are expecting a decline of 0.1% on a monthly basis, and that would be a sharp fall from the 0.5% rise in July. While retail sales are expected to rebound with a 0.4% increase, from a 0.2% fall in June.
EUR/USD – has been edging higher for over one month and if the bullish move continues it could target the 1.1850 region. A move to the downside might find support at 1.1607 – 50-day moving average, or the 1.1510 area.
GBP/USD – has been pushing higher since mid-August, and if it can hold above the 1.3000 mark, it could edge up towards the 1.3361 area. A move below 1.3000 might bring 1.2785 into play, and below that support might be found at 1.2661.
EUR/GBP – the key week and day reversal that we saw in late August could point to further losses and support might come into play at 0.8836 – 200-day moving average. If the wider uptrend continues it could target 0.9100 or 0.9160.
USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 113.18. Support might be found at 110.76 – the 100-day moving average.
FTSE 100 is expected to open 24 points higher at 7,391
DAX is expected to open 48 points higher at 12,374
CAC 40 is expected to open 14 points higher at 5,465
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