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Flat open expected ahead of flash PMIs

In the absence of US markets for Presidents Day yesterday, European markets underwent a quiet and subdued session, with little in the way of direction. The FTSE 100 managed to eke out a modest gain above 8,000 with resilience in the mining sector helping to buoy the London market. 

At the end of last year public sector borrowing in the UK surged to its highest December level since records began due to the cost of energy support as well as higher debt costs. The sum of £27.4bn was over double what it was in 2021. As we look towards today’s January numbers, we can probably expect to see a modest improvement in tax receipts to help boost the tax take, as companies and individuals settle their final year tax bills, but not by enough to push the sum into surplus territory, with an expectation we will see an improvement to £7.9bn, but no surplus. 

On the plus side, with energy prices continuing to fall sharply we have been seeing a pickup in economic activity in the past few months, which is being reflected in the latest PMI numbers over the last three months. Today’s flash PMIs from France, Germany and the UK are set to point to a further pickup in economic activity, with manufacturing expected to show an improvement to 51, 48.1 and 47.5 respectively. Services sector activity has seen a similar improvement albeit from slightly lower levels with French services activity expected to improve to 49.8, from 49.4, Germany to 51, from 50.7 and the UK to edge up to 49.2 from 48.7.

We can also expect to see a continued improvement in German ZEW investor sentiment given the recent declines in energy prices and pickup in economic activity, and rise in the DAX, although the current situation index is still expected to remain firmly in negative territory at -50.5. Expectations are set to improve to 23 from 16.9.

As far as US manufacturing and services PMIs are concerned there is a significant disconnect between these indicators and the ISM surveys which show a more positive picture of the US economy. Both US manufacturing and services sector activity are forecast to remain in contraction at 47.4 and 47.3 respectively albeit a modest improvement on the January numbers. .

EUR/USD – quiet session yesterday, with support at the lows last week at 1.0610 area and resistance at the 50-day SMA currently at 1.0730. The bias remains for a move towards the 1.0480 level, while below the 1.0800 area.

GBP/USD – found support at the 200-day SMA at the end of last week, keeping the current range between support at 1.1920/30 and resistance at the 50-day SMA at 1.2180 intact. Below 1.1920 retargets the 1.1835 area, while we need to see a move through 1.2300 to reopen a move towards 1.2400.

EUR/GBP – has found support at the 0.8870 area after last week’s failure at the 0.8930 area. Below 0.8860 reopens a move back towards support at the 50-day SMA at 0.8810 area.

USD/JPY – drifted back from the 135.10 area after breaking above the 50-day SMA last week which is now at 132.00. This should now act as support for a move towards the 200-day SMA at 136.70.

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