The eurozone is clearly struggling given the gloomy economic reports on Friday.
French manufacturing PMI slipped from 51.4 to 49.8, while the services PMI report dropped to 48.7, from 49.8. The German update was even more alarming as the manufacturing reading collapsed to 44.7 – its lowest since July 2012. All the Brexit chatter has been about the state of the UK economy, but mainland Europe is limping along, and the bloc is looking very weak. Brussels is holding firm, but the eurozone is struggling and France and Germany would be badly impacted by a no-deal Brexit.
The economic announcements sent shockwaves throughout Europe, and equities and the euro suffered as consequence. The PMI reports sharpened investors’ minds, and it brought the weak euro-area into centre stage. The FTSE 100 registered its largest daily lose in 2019, and that sums up the negative sentiment.
The US revealed mixed economic indicators on Friday, and that added to the sour sentiment in stock markets around the world. The manufacturing PMI report came fell to 52, its lowest reading in 21 months. The services PMI report dropped from 56 to 54.8. On the bring side, new home sales came in at 5.51 million, which exceeded the 5.1 million forecast. US markets also suffered losses on Friday on the back of the poor PMI reports. There is a growing feeling the world economy is cooling, and the S&P 500 suffered its largest daily loss since January
Overnight, stocks in Asia sold-off heavily as concerns for the health of the global economy weighed on sentiment. Heavy losses were sustained in Japan and China. US equity index futures are now in the red due to worldwide sell-off, but they opened higher on the session when the US attorney general, William Barr, said the Mueller investigation did not find sufficient evidence that Donald Trump colluded with Russia during his 2016 presidential campaign.
Brexit will remain in focus as the EU granted Theresa May the extension she requested. The length of the extension will depend on whether Mrs May can get approval for her withdrawal agreement from MPs. The UK’s departure from the EU will be mid-April or late May depending how the voting goes.
Oil hit a fresh four-month high last night last week on the back on supply concerns as Saudi Arabia made it clear they intend to keep their production cuts in place. The latest Energy Administration Information report showed a large draw in US oil stockpiles, and the Baker Hughes update showed that the number of active rigs declined by 9 – its fifth consecutive weekly fall. The energy lost ground on Friday as the poor manufacturing numbers from around the world prompted fears about demand.
Gold benefited from the sell-off in global stocks as traders sought safe-haven assets. The rally in the metal was all the more impressive given the firmer US dollar. Palladium finished last week on a negative note, but only after racking up series of all-time highs earlier in the week. The metal is continues to be in high demand it is used in catalytic converters in engines. There has been talk of substituting platinum for palladium as it is relatively cheap, but that hasn’t impacted the palladium market yet.
At 9am (UK time) the German Ifo will be released and the consensus estimate is 98.5, which would be unchanged from the February report.
EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might retest the 1.1176 area. Resistance might be found at 1.1448.
GBP/USD – has been driving higher since early December, and if it holds above the 200-day moving average at 1.3000, it might retest the 1.3380 area. The 1.2775 area region might act as support.
EUR/GBP – while its holds below the 200-day moving average at 0.8842, 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 on the rise since early January, and if the bullish move continues it might target the 112.00 area. A break below 109.55, might bring 108.50 into play.