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Markets quiet, US to reopen post-holiday

Markets quiet, US to reopen post-holiday

European stock markets posted strong gains yesterday even though uncertainty increased with respect to the UK-EU trade situation. 

On Sunday, Boris Johnson said that if the UK hasn’t agreed a free trade deal with the EU by 15 October, it would make sense to stop carrying on with the talks. Negotiations between the two sides will restart today, and the British have made it clear they are willing to walk away without a deal if necessary, so the ante has been upped. Mr Johnson is content to trade with the EU on basic WTO terms from January, if a satisfactory deal is not brokered.

Despite the tick up in trade rhetoric, equities in Europe enjoyed a bullish run yesterday. The FTSE 100, outperformed as it gained 2.39%. The DAX 30 rallied just over 2%, and the CAC 40 and the FTSEMIB closed up 1.79%. Equity markets were not spooked by the tough political talk, but sterling did come under pressure. In fact, the slide in the pound helped the FTSE 100 outstrip is continental counterparts. It has often been cited that the FTSE 250 is more sensitive to the British economy than the FTSE 100, but even the FTSE 250 rallied 1.66%.

US stock markets were closed yesterday as it was Labour Day. In a way that probably helped European stock markets as the aggressive moves seen in US tech stocks at the back end of last week influenced the markets over here. The US tech sector will be in focus today as it has been very volatile recently. Tesla was not admitted to the S&P 500 in the reshuffle that took place after the close of business on Friday.

The Japanese GDP reading for the second quarter, on a quarterly basis, was revised to -7.9% from -7.8%.  Private consumption was revised to -7.9%, from -8.2%. The Nikkei 225 is up on the day, while stocks in Hong Kong and mainland China are lower.

China launched a global data security initiative in a bid to reduce tensions with the US. The Beijing administration set out guidelines for Chinese tech firms, which include instruction not to steal data or impair the IT infrastructure of other companies. The Trump administration is putting pressure on Chinese tech firms, and the announcement by the Chinese authorities is aimed at enhancing their image. President Trump is likely to remain sceptical though. 

The US is considering a ban on cotton from the Xinjiang region of China due to human rights concerns.    

The US dollar index pushed higher yesterday, so it continued on the upward move that has been in place for almost one week. Recently the greenback has had a few unsuccessful attempts at shaking off the wider negative trend that has been in place since May. Should it clear the highs of early August, that would be a significant move, and it could usher in the beginning of a rebound.

Oil suffered yesterday on the back of the news that Saudi Arabia lowered the price of its oil shipments to Asia and the US. The decision to trim the price suggests the Saudi’s were worried about demand slipping. The latest trade data from China showed that imports in August decreased by 2.1%, and that was a decline on the 1.4% fall that was registered in July. China is the largest importer of oil in the world, so the report added to oil bearish move.     

Yesterday was relatively quiet in terms of news flow. House prices in the UK continue to be push higher. According to Halifax, on a monthly basis, house prices grew by 1.6%, topping the 1.5% consensus estimate. The July reading was revised up to 1.7% from 1.6%. The report ties in the latest updates from Nationwide and Rightmove which also point to a robust housing market. Purchasing a property is a major financial commitment, and since the property market has reopened, pent-up demand has clearly been unleashed. We are now in early September, and as it stands, the furlough scheme is set to end in late October so the jobless rate could spike, and in turn the property market could cool towards the end of the year.    

The German industrial orders for July were disappointing as they only grew by 1.2%, while the consensus estimate was for growth of 4.7%. The June update was revised up from 8.9% to 9.3%. The sharp deceleration in activity suggests that economic activity is fading. The reading was in-step with the manufacturing PMI reading from June to July, whereby the rate of change cooled.

At 7am (UK time), Germany will post its trade data for July. Exports are expected to increase by 5%, which would be a large drop from the 14.9% posted in June. Imports are anticipated to be 3%, while the previous update was 7%.

The eurozone’s revised GDP for the second quarter is tipped to be -12.1%, which would be unchanged from the flash reading. The level for the first quarter was -3.6%. 

EUR/USD – has been in an uptrend since April and if the bullish run continues it should target 1.2000 or 1.2140. A pullback might find support at 1.1696 or at the 1.1600 zone. 

GBP/USD – while it holds above the 1.3000 mark, the bullish trend that has been in place since late June should continue, and it might target 1.3515. A move back below 1.3000, could see it target the 1.2800 zone. 

EUR/GBP – Thursday’s daily candle has the potential to be a bullish engulfing and should it move higher, it might retest the 50-day moving average at 0.9015. A break below 0.8864 should put 0.8800 on the radar.  

USD/JPY – while it holds below the 100-day moving average at 106 90, the broader bearish move is likely to remain intact. A move through 105.10 could see it target 104.18. A break above 107.00, should bring 107.88, the 200-day moving average, into sight.  

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