Financial markets appeared to shrug off yesterday’s warnings from the IMF that the global growth story was in its final furlong, and that investors were being complacent about the possibility of a possible disruption, and sudden repricing of risk. The fund downgraded its forecasts in 2018 for Germany, France, Italy and Japan, while leaving its assessment of the US economy unchanged, at the same time raising its concerns about rising trade tensions.
Investors appear to be focussing on the data, for now, which has managed to remain fairly solid, while earnings announcements have by and large proved to be fairly positive, with the Dow closing higher yesterday on the back of another set of strong bank results.
Concerns about the tech sector weighed on the S&P500 and Nasdaq as they finished slightly lower, and they probably won’t have been helped by last night’s miss by Netflix (NASDAQ:NFLX), not only on subscriber numbers which missed by 1m, coming in at 5.2m against the 6.2m extra expected, but by the fact the company lowered its estimates for the rest of the year. A classic case of raising the bar too high and crashing into it, as the share price plunged in after markets hours. Despite the plunge, the share price has still managed to move from $200 to $400 this year, but nonetheless the company will need to manage expectations better in the future. Amazon (NASDAQ:AMZN) shares also fell after its website went down as its flagship Prime day got under way yesterday, not a particularly good omen for its numbers which are due next week.
The Bank of England will get a final look at how well the UK economy is doing this week starting today with the latest unemployment and wages data. Since the Bank of England deferred a decision on raising rates in May the UK economy has rebounded strongly from the slowdown seen in Q1 with a strong performance seen across all the major sectors, raising expectations that the monetary policy committee may coalesce around a majority decision to raise rates in just over a couple of weeks’ time.
This week’s data could go some further in raising these expectations or dash them completely, unless Bank of England governor Mark Carney performs another one of his reverse ferrets this morning and pours cold water on the prospect when he speaks in Farnborough today, just prior to the release of this morning’s data.
Despite all the recent reports of job losses in the retail sector, thus far we’ve seen little evidence of an impact in the headline unemployment numbers, though that could change in the coming months.
For now, unemployment is expected to remain unchanged at 4.2%, while on the wages front there has been evidence that the recent rise in the private sector wages has been slowing a touch, though with inflation slipping back to 2.4% we are now seeing wages outstrip prices. This looks set to remain the case in today’s numbers with weekly average earnings for the three months to May expected to fall slightly from 2.8% to 2.7%.
We’ll also get to hear from Fed chair Jay Powell later today as he sits down in front of the Senate Banking committee to answer questions on the US economy. He is likely to be quizzed on the likelihood of seeing another two rate rises this year and whether policymakers are starting to worry about the economy running too hot. He could also be asked if officials have concerns about the flattening of the yield curve and what the possible causes might be. Other concerns are likely to be around trade and whether the Fed has modelled any scenarios, around a significant trade disruption.
EURUSD – having held above support at the 1.1620 area there is a risk we could head back towards last week’s high at 1.1790. Only a move back below the 1.1600 area opens up a retest of the May lows at 1.1510/20. A break below 1.1500 has the potential to open up a move towards the 1.1360 level.
GBPUSD – the 50-day MA at 1.3325 appears to be capping the upside for now, with support back at the lows last week at 1.3100. A move through 1.3330 could see a move towards 1.3380. A move below 1.3100 argues for a retest of the June lows at 1.3045.
EURGBP – the 0.8900 area remains a formidable barrier to further gains with the bias remaining for a retest of the lows last week, with a break of the 0.8800 level arguing for a move back the 0.8700 area.
USDJPY – last week’s break of the 111.20 area opens up the prospect of a move towards the 113.75 area and December peaks. Support now comes in at the 112.20 area as well as the 111.20 level.
FTSE100 is expected to open 10 points higher at 7,610
DAX is expected to open 14 points higher at 12,575
CAC40 is expected to open 5 points higher at 5,414
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