European stocks had a lacklustre start to the week yesterday, with weakness in commodity prices offset by strength in the likes of defensives, with utilities and healthcare outperforming, which in turn helped the FTSE 100 to finish the day modestly in the green.
There was also little in the way of direction for US markets, which also traded quietly below last week's record highs, with the Nasdaq regaining some of Friday’s lost ground.
A large part of the weakness in commodity prices yesterday, which saw crude oil sink to one-month lows, has been concern over rising Delta variant cases in both China and the US, acting as a brake on demand. China is a particular concern given the disruption caused by recent flooding in some areas of the country, which appears to be making it difficult to contain new virus outbreaks, while US cases rose to a six month high.
Gold and silver prices also flash crashed sharply lower before rebounding, as investors looked ahead to this week's US CPI numbers, against a backdrop of concern that the recent rise in inflationary pressures may well be more persistent, than transitory.
Yesterday’s China factory gate numbers for July showed another increase, rising back to 9% after dipping to 8.8% in June. Some of that gain was as a consequence of higher crude oil and other raw material prices, however there is evidence that prices are now starting to level off and slide back, if recent declines in various key benchmark commodity indices are any indication.
Asia markets have had a similarly quiet session as rising virus concerns temper enthusiasm here and this looks set to bleed into today’s European open, with the only data of note being the latest German ZEW economic expectations survey for August. This is expected to decline to 55, after dropping to 63.3 in July from 79.8 in June. Amongst the many reasons is likely to be due to the damage caused by the recent flooding, as well as concern that the recovery in China is hitting a soft patch.
On the UK data front, the latest BRC retail sales data for July showed that consumer spending slowed a touch despite the full lifting of restrictions, with online spending falling back, although it still remained resilient. Spending on the likes of theatre, cinema and sporting events rose, as did spending on in store sales as shoppers returned to the high street. Like for like sales in July rose 4.7%, down from June’s 6.7%.
EUR/USD – looking soggy but needs to push below the 1.1740 area to open up a return to the March lows at 1.1704, and the November lows at 1.1603. Resistance comes in at the 1.1830 area.
GBP/USD –feels like we could see a test of the 1.3820 area. A fall below 1.3800 argues for a return to the 1.3720 area. A move through the 1 4020 area is needed to reopen the path higher.
EUR/GBP – posted a new 18-month low yesterday at 0.8462, with the potential to move lower towards the 2020 lows at 0.8280. The euro needs to recover back above the 0.8540 level to stabilise.
USD/JPY – looks on course to retest that 110.70 area and July highs, after last week’s break above the 109.80 area. This should now act as support for another leg higher.