European stock markets largely traded lower yesterday. Volatility was low, despite there being two central bank updates in the previous 24 hours. The rally from late December appears to be taking a bit of a breather, but Germany is the exception as the DAX managed to make ground.
Wednesday’s Federal Reserve update was a little more hawkish than expected, and that heled the greenback move higher, and that pivot, could be the beginning of the US dollar index retesting the April highs. The Fed gave off the impression they have no desire to cut rates any time soon. The S&P 500 and NASDAQ 100 finished in the red yesterday as traders adjusted their expectations about the prospect of a rate cut.
The Hang Seng is largely unchanged on the day as the markets in mainland China and Japan remained closed for holidays.
Sterling edged lower yesterday, and the move higher in the US dollar was partially to blame. The Bank of England maintained their monetary policy, which wasn’t a surprise. The update from the bank’s chief, Mark Carney, was a bit of a contradiction. Mr Carney raised the growth outlook, but also predicts that inflation will drift lower. In the grand scheme of things, the UK central bank are highly unlikely to change their policy until Brexit is out of the way.
Gold’s decent from mid-February continues, and the dollar’s strength is behind the bearish move. The metal has been trending lower for over two months, and if the move continues it might retest the $1,250 region.
At 1.30pm (UK time) the US non-farm payrolls report will be revealed, and the consensus estimate is 185,000, and that compares with the 196,000 registered in March. Unemployment is tipped to remain at 3.8%. Yearly average earnings and monthly average are expected to edge up to 3.3% and 0.3% respectively. Workers who earn more typically spend more, so the wages component will be closely watched.
The UK services PMI report will be announced at 9.30am (UK time) and the reading is expected to rebound from 48.9 to 50.5. Keep in mind the services sector accounts for approximately for 75% of UK economic output. Earlier this week, the manufacturing PMI report and the construction PMI readings came in at 53.1 and 50.5 respectively, so the other big industries are showing small levels of growth.
Eurozone inflation will be released at 10am (UK time) and the headline figure is tipped to jump to 1.6%, from 1.4%, and the core reading is expected to increase to 1% from 0.8% The oil recently hit a six month high, and that was reflected in the individual inflation reports where French, Spanish, Italian and German reports all rose earlier in the week. The core reading will be closely watched as it will give a true reflection of demand in the currency bloc.
Yesterday, we saw a broad increase in eurozone manufacturing. The Spanish, Italian and French manufacturing PMI reports all showed improvement on the month, while the German reading remained in deep contraction territory at 44.4. Germany is the powerhouse of the eurozone, and if the country is undergoing an economic cool down, it is likely to spread around the region.
The ISM non-manufacturing report is tipped to be 57, up from 56.1 in March, and it will be announce at 3pm (UK time).
EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might target the 1.1000 area. Resistance might be found at 1.3220.
GBP/USD – has been driving higher since early December, and if it holds the 200-day moving average at 1.2964, it might target the 1.3200 area. A move to the downside might retest the 1.2775 region.
EUR/GBP – while its holds below the 200-day moving average at 0.8813, its outlook is likely to be negative. 0.8471 might act as support. A rally might encounter resistance at 0.8800.
USD/JPY – has been largely been pushing higher throughout 2019, and a break above the 112.00 area, might bring 113.70 into play. 110.77 – 100-day moving average, might provide support.
FTSE 100 is expected to open 7 points higher at 7,358
DAX is expected to open 7 points lower at 12,338
CAC 40 is expected to open 6 points higher at 5,544
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