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Europe set for softer start, ahead of UK autumn Budget

Sunak displays budget brief case

European markets posted their third successive day of gains yesterday with the FTSE 100 setting a new 20-month high, while US markets continued to break records. This saw the Nasdaq 100 join the S&P 500 and Dow in setting new record highs, as optimism over company earnings continued to offer a tailwind for stocks.

Yesterday consumer goods giant Reckitt Benckiser joined its sector peers Unilever, Procter & Gamble, as well as Nestle in reporting higher sales, as well as higher revenues, sweeping away the concern of a few weeks, that raising prices isn’t the demand killer that many thought it might be. It also means companies are likely to much more able to better maintain their margins.

In the US, the performance of UPS in their Q3 numbers also offered an insight into how well the US economy is doing by seeing a 13% increase in revenues as it absorbed higher costs, by raising prices, although volumes dipped slightly by 2%. With Alphabet, Microsoft and Twitter all reporting after the bell, there was a mixed response with Microsoft and Alphabet posting impressive numbers, while Twitter disappointed as a consequence of the change in Apple’s privacy rules.

As we look ahead to today’s European open, we look set for a slightly softer start with the main focus for today will be the UK Autumn Budget which is due to start after 12.30pm, after PMQs.

With all the briefings that have been taking place since the weekend there would appear to be little in the way of surprises when the chancellor of the exchequer gets up to speak later today. Most of the content appears to have already been pre-briefed much to the displeasure of the Speaker of the House of Commons. These include increases to public sector pay, a huge cash injection for the NHS, investment in regional transport, skills, housing, and education, along with a freeze to fuel duty, however the devil will be in the detail, in terms of how much it is all likely to cost.

On the data front we have some more US data with durable goods for September, which given the various problems with supply chains could see a decline of 1.1%, after a 1.8% rise in August. Excluding transports expectations are for a rise of 0.4%.

The Bank of Canada is also set to meet and is widely expected to keep rates unchanged at 0.25%, although the committee is expected to taper bond purchases from C$2bn to C$1bn a week. The only question would appear to be around when rates are set to rise with a consensus of around April 2022.

The central bank will need to update its inflation forecast given CPI is currently at 4.4% and well outside their target range, with governor Macklem likely to stick to the narrative that most of what is being seen is transitory in nature. 

EUR/USD – currently holding below the 1.1620 level, which keeps the bias towards the 1.1560 area. A move above the 1.1630 area retargets 1.1680, with major resistance at 1.1760. Below 1.1520 targets the 1.1450 area.

GBP/USD – continues to struggle below the 200-day MA at 1.3840. While below there is a risk of a return to the 1.3720 area where we have support. A move below 1.3720, targets the 1.3670 area. The bias remains for a move towards the 1.3900 area on a move through 1.3850.

EUR/GBP – slipped below the 0.8420 area yesterday, however we couldn’t move below the 0.8400 area. A break below the 0.8400 area targets the 0.8280 level. We need to break above the 0.8470 level to target the 0.8520 area.   

USD/JPY – the November 2017 peaks at 114.75, remains the key resistance, after the pullback to 113.40 area last week. The 113.20 area is the next key support, followed by the 112.40 area.

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