European equity markets had a mixed session yesterday. The FTSE 100 continued to be helped by firmer commodity prices. Metals and oil assisted the British benchmark, and the strong performance from Royal Dutch Shell (LON:RDSa), was an added bonus to the FTSE 100, as it has a high weighting in the index.
The eurozone was a different story. The FTSE MIB finished in the red as the latest GDP figures from Italy confirmed the country entered recession. In the fourth-quarter of 2018, the economy contracted by 0.2%, and that combined with a 0.1% contraction in the third-quarter, equates to a recession. The third-largest economy in the eurozone is in recession, and given that we have seen underwhelming economic updates from France and Germany lately, this economic downturn could last. There was a report that the German government would approve a merger between Deutsche Bank (DE:DBKGn) and Commerzbank (DE:CBKG), just to try and attempt to boost confidence in the banking sector. The news of the report sent both stocks lower, and the DAX finished in the red.
The jobless rate in the eurozone in December held steady at 7.9% - meeting forecasts. The region grew by 0.2% in the final quarter of last year, also, meeting forecasts. Today, at 10am (UK time), the eurozone headline and core CPI reports will be released, and economists are expecting 1.4% and 1% respectively.
The S&P 500 hit its highest level since early December as the neutral update from the Federal Reserve on Wednesday, propelled the market higher. The US index has been bouncing back since just after Christmas, and when the Fed said they will be ‘patient’ in relation to hiking rates, it encouraged further buying.
Overnight night, China announced the Caixin survey of Chinese manufacturing, and the report came in at 48.3, and that compares with the 49.7 reading in December. The reading overnight was the lowest since early 2016. Despite the poor numbers, Asian stocks had a mixed session as President Trump said he hope to strike a trade deal with China before the March deadline.
The US non-farm payrolls report at 1.30pm (UK time) will be the highlight of the session. The jobs report is tipped to show an increase of 165,000 in January, and that compares with 312,000 that were added in December. The unemployment rate is expected to hold steady at 3.9%, and yearly average earnings are expected to remain at 3.2%. The wages component of the update is very important, as workers who earn more, tend to spend more, and that drives the economy along.
The manufacturing PMI reports from Italy, France and Germany will be released between 8.45am (UK time) and 8.55am (UK time), and the consensus estimate is 48.8, 51.2, and 49.9 respectively. The UK manufacturing PMI update will be released at 9.30am (UK time), and 53.5 is the consensus estimate.
EUR/USD – has been broadly pushing higher since mid-November, and if the positive move continues it might retest the 1.1570 area. A break below the 1.1300 region might bring 1.1216 into play.
GBP/USD – has been pushing higher for over one month, and if it holds above 1.3000, it might bring 1.3361 into play. Support might be found in the 1.2815 region.
EUR/GBP – has been pushing lower since the start of the month, and support might come into play at 0.8620. The 200-day moving average at 0.8863 might act as resistance.
USD/JPY – if it manages to hold above the 108.00 area, it might target 110.00 or 111.25 – 200-day moving average. A drop below 108.00 might clear the way for further losses.
FTSE 100 is expected to open 4 points higher at 6,972
DAX is expected to open 21 points lower at 11,152
CAC 40 is expected to open 1 point lower at 4,991
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