Stocks finished in the red on Friday as health fears and lockdown worries encouraged traders to exit the market.
Last week, it was announced that France and Germany will be going into lockdown, and several other European countries tightened restrictions too. Sentiment was knocked on the back of that, and to make matters worse, it was revealed over the weekend that England will be going into lockdown for one month. On account of the renewed tougher restrictions, the UK furlough scheme has been extended until next month.
Economic activity is likely to dip on account of the tighter restrictions, and that will probably be the theme of the markets in the near-term. The health crisis is ratcheting up in terms of new Covid-19 cases and hospitalisation rates, and there is a sense things are going to get worse before they get better. Medical experts were claiming since the beginning of the health crisis that the virus is likely to resurface in winter, but nonetheless, hear we are and dealers have been rattled by the situation.
In the past few months, traders were strung along by the non-stop chatter about the proposed US stimulus package. There will several rounds of talks between Nancy Pelosi, the House Speaker and Steven Mnuchin, the Treasury Secretary, but nothing was decided upon in the end.
Overnight, the Caixin survey of Chinese manufacturing was posted and the reading was 53.6, while economists were expecting it to remain at 53. The official manufacturing PMI reading came in at 51.4, which was slightly ahead of the 51.3 consensus estimate, but it dipped from the 51.5 posted in September. The major equity markets in the Far East are showing decent gains despite the headline that Covid-19 has claimed in excess of 1.2 million people globally. European indices are largely anticipated to open higher.
The US Presidential election is tomorrow and it will be the talk of the town. Joe Biden, of the Democrats is performing better in the polls, but in key swing states, President Trump has eaten into Biden’s lead. It was reported there was a record level of early voting, and that underlines the intensity of the election.
The US sector endured a sizeable sell off on Friday even though major companies like Apple, Amazon, Facebook and Alphabet – Google’s parent – all posted largely positive quarterly updates on the Thursday. Admittedly, the updates were not rock solid as there were a few areas of weakness, for example, Apple didn’t offer a guidance, and Facebook cautioned about lower user growth in North America. The scale of the declines were relatively large, when you consider the strength of the reports. It felt like dealers were using any excuse dump tech stocks. Then again, there has been talk for a long time that those companies in question had lofty valuations.
The dollar had a mixed session on Friday as it traded lower for much of the day but then pushed higher. It retreated a little from the bullish move it enjoyed earlier in the week. After the close of the European equity markets on Friday, equities in the US full further, and the prompted a push higher in the greenback.
Commodities were mixed on Friday as oil, platinum and copper lost ground. While gold, silver and palladium closed higher, but that might have been down to short covering seeing as they all lost ground during the week.
Trade talks between the EU and the UK will continue today. Lately, people have been cautiously optimistic that a deal will be achieved by the middle of November. Fishing rights was been a sensitive issue but there is talk that progress is being made on that front.
Between 8.15am (UK time) and 9.30am (UK time) the major economies of Europe will reveal their manufacturing PMI reports. Spain, Italy, France, Germany and the UK will post their updates, and the consensus estimates are 50.9, 53.3, 51, 58 and 53.3 respectively.
At 2.45pm (UK time) the US manufacturing PMI data will posted and economists are expecting 53.3, shortly afterward, the ISM manufacturing report will be announced and the consensus estimate is 55.6.
EUR/USD – has been moving lower for over one week and if the bearish move continues it could target 1.1612 or 1.1400. A rebound might run into resistance at 1.1788, the 50-day moving average or at 1.2000.
GBP/USD – recently retreated from a six week higher and while it holds above the 100-day moving average at 1.2878, the uptrend should continue. 1.3269 might act as resistance, and a move beyond that mark, could put 1.3515 on the radar.
EUR/GBP – while it holds above the 0.9000 mark, it might look to retest the 0.9157 area. A break below 0.9000 could see it target 0.8864.
USD/JPY – remains in the wider downtrend and if the negative move continues it could target 104.00 or 101.19. A rally might run into resistance at the 50-day moving average of 105.48 and a move above that, could see it target 107.00.