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Equity volatility remains high, eurozone data in focus

European car manufactures had a stellar session yesterday after it was reported that the Chinese government are considering slashing the levy on car purchases by half. 

The DAX 30 in particular had a good run as companies like Daimler, BMW and Volkswagen were in demand. Germany was also in the news after the Chancellor, Angela Merkel, announced she will not seek to remain the leader of the Christian Democratic Union (CDU), and more importantly, she will quit politics when her term as Chancellor runs out in 2021. The CDU had a poor performance in the Hesse state elections over the weekend, and that triggered the announcements. It was big news to digest seeing as Mrs Merkel has been a major player in European politics for a long time.

US automakers like Ford and General Motors were also driven higher by the news out of China. The major US indices gave up their gains after it was reported that President is planning to impose $257 billion worth of additional tariffs on Chinese imports if trade talks don’t go smoothly. Trade tensions between the two largest economies in the world have been simmering away recently and now it looks as if it is going to get even more serious. Companies like Caterpillar and 3M have already noticed the cost increases and their prices will rise, and that could become a common theme in future earnings seasons. Boeing lost ground last night as dealers were fearful the company could get caught up in the US-China trade spat.

Tech giants like Amazon and Alphabet, which both finished last week on a negative note, had a shaky start to yesterday’s session, and finished firmly in the red. The jitters in the tech sector eroded overall market confidence. It seems the moves in the NASDAQ 100 are setting the pace for the wider market.

Overnight, trade tensions eased after it was reported that Mr Trump spoke of a ‘great’ trade deal with China, but cautioned that Beijing might not be ready for an agreement. The Chinese regulator announced that it wants to boost investment in publically traded companies, and it will make it easier to carryout share buybacks, and mergers and acquisitions will be easier to undertake too. The news boosted stocks in mainland China.

Philip Hammond, the Chancellor of the Exchequer, announced the budget yesterday, and he revealed a digital services tax will be implemented in 2020. Major online firms that collect revenue in the UK will be targeted. The UK’s economic health is looking more optimistic as the growth forecast was upped, wages growth over the next five years is tipped to be stable, and the deficit forecast was lowered. The high street was given a hand by ‘fiscal Phil’ as he ear-marked a £675 million fund for the sector. Adding to that, business rates will be cut by one third for some business.

The US dollar index made ground yesterday as the core PCE held steady at 2%, meeting forecasts – the report is the Federal Reserve’s preferred measure of inflation. Seeing as it is holding steady we could see the Fed continue down the path of hiking interest rates.   

Oil lost ground yesterday as investors are fearful about future supply. China is slowing down and the trade dispute with the US appears as if it’s going to get worse. Over the weekend, the Russian energy minister, Alexander Novak, stated there is no reason for supply to be curtailed. US oil inventories have been rising recently, and now long oil positions by speculators has reached a 15 month low.

There are a number of important economic announcements from the eurozone today. At 8.55am (UK time), the German unemployment rate will be released, and the consensus estimate is for it to hold steady at 5.1%. Third-quarter Italian GDP will be released at 9am (UK time), and economists are anticipating annual growth of 0.9%. Third-quarter eurozone GDP will be released at 10am (UK time) and dealers are expecting 1.8%. German CPI will be reported at 1pm (UK time) and the forecast is 2.4%.

EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1.1300 area to be retested. A move to the upside could run into resistance at 1.1598 – the 100-day moving average.

GBP/USD – the push higher since mid-August is starting to look weak, and if it remains below 1.3000, it could put 1.2785 on the radar. A rally above 1.3000, could bring the 1.3250 region into play. 

EUR/GBP – has been pushing higher since mid-October and if it holds above the 200-day moving average at 0.8836 it should push higher. A break above 0.8900 might bring 0.9000 into play. If the wider downtrend continues, it might target 0.8800.

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 114.73. Support might be found at 111.61 – 100-day moving average.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.


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