In a bid to improve China-US trading relations, Beijing confirmed its intension to cut tariffs on $75 billion worth of US imports in half.
The Chinese government didn’t specify which products would be impacted by the move. It will come into effect on 14 February – when the US will cut tariffs from 15% to 7.5% on $120 billion worth of Chinese imports. The announcement from Beijing drove up stocks in Asia, and equity markets in Europe are called higher on the back of it too.
The rebound in stock markets continued yesterday on hopes the coronavirus situation would be brought under control. A British news outlet ran a story that a research team in the UK made a ‘significant breakthrough’ in relation to devolving a vaccine for the virus. In addition to that an unconfirmed report claimed that a reach group operating at Zhejiang University made progress on a drug created to treat coronavirus.
The World Health Organisation felt the need to clarify that no known ‘effective therapeutics’ are available for the deadly virus, but that didn’t dissuade traders from snapping up stocks. The major equity markets in Europe all gained ground yesterday, with the DAX adding in excess of 1.4% while the FTSE 100 rallied nearly 0.6%.
It was a similar situation in New York, where the Dow Jones comfortably closed above the 29,000 mark. In early trading the NASDAQ 100 notched up an intraday record-high, but the sharp move lower in Tesla caused the index to retreat from its peak. The auto-maker has been the driving force behind the market’s strong performance recently, so it’s only natural at some point it would hold the benchmark back.
The US dollar had a good run yesterday thanks to stellar jobs data. The ADP employment report came in at 291,000, which smashed the 156,000 forecast, and was a big improvement on the respectable 202,000 jobs that were added in December. The greenback gained around versus the euro, sterling as well as the Japanese yen.
The major economies of Europe revealed the final readings of their services PMI reports for January. The UK reading was 53.9 – the highest since September 2018. It is possible there was a jump in activity on the back of the Conservatives' election win in December. Boris Johnson’s party are pro-business so it might have been the case that activity ticked up when a Labour government was avoided. In the eurozone, the readings on the whole were less impressive, as Germany, France and Italy came in at 54.2, 51.0 and 51.4 respectively.
Oil surged yesterday for the same reason that stocks pushed higher – on hopes the health crisis in China would be constrained. The country is the largest energy importer in the world and the severe declines that were suffered in oil were due to worries about demand, so optimism surrounding the commodity prompted some buying.
At 1.30pm (UK time) the US jobless claims report will be posted and the consensus estimate is 215,000, which would be a slight improvement on last week’s 216,000.
EUR/USD – has been pushing lower since late December and while it holds below the 50-day moving average at 1.1094, the bearish move might continue. Support might be found at the 1.0900 area. A break above 1.1172 should pave the way for 1.1249 to be retested.
GBP/USD – while it holds above the 1.2900 area the wider positive move should continue. A break above 1.3284 should pave the way for the 1.3500 area to be retested. A break below 1.2900 should pave the way for further losses.
EUR/GBP – surged on Monday but while it holds below the 0.8600 mark, the broader bearish trend is likely to continue. A drop below 0.8387 might bring 0.8276 into play. Resistance might be found at 0.8600.
USD/JPY – has pushed higher and while it holds above the 50-day moving average at 109.20 the wider bullish trend should continue, and it might retest the 110.00 area. A move below 108.30 might put 107.65 on the radar.