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Sentiment mixed as Chinese concerns persist

Stocks had a good run last week but ended on a mixed note. The bounceback that began in late October largely carried on, but European and US indices handed back some of their earlier gains at the end of the week.

The back and forth over the US-China trade relationship lead to volatility in global markets. White House economic advisor Larry Kudlow confirmed that President Trump did not instruct the cabinet to draft a trade deal. That being said, things are still looking a little optimistic, as the US and Chinese leaders will hold meetings at the G20 summit later this month.

Overnight, the Caixin survey of Chinese services reading was 50.8, lower than economists expecting 52.9. The September reading was 53.1. Broadly speaking, the survey has been in decline since February.

The Beijing government kicked off the China International Import Expo – a week-long even that aims to promote China’s international trade. President Xi Jinping prompted free market policies and warned against the dangers of protectionism. Dealers overlooked this statement, and instead focused on the trade spat with the US, as Chinese markets lost ground.   

The US non-farm payrolls was largely well received. In October, 250,000 jobs were added, which easily exceeded the 190,000 forecast. The September figure was revised to 118,000 from 134,000. When you take an average of the two reports, the figures were reasonably good. Unemployment held steady at 3.7%. Average yearly earnings jumped from 2 8% to 3.1% - which is a sizeable move. Higher earning power should translate into higher spending, which should drive the economy. There is still talk the Federal Reserve will be continued down the path of monetary tightening.

Oil tumbled last week after OPEC increased its output, and traders are also worried about future demand as major oil importers like China and India are cooling. On Friday, the US confirmed that sanctions on Iran will be implemented today, but eight countries will be exempt from the sanctions. India and South Korea are among the nations that will be allowed to keep importing oil from Iran without penalty from Washington DC. The fact a number of countries were exempt from purchasing Iranian oil should mean the supply drop off won’t be as severe as initially expected.

The UK services PMI report will be announced at 9.30am (UK time), and the consensus estimate is for 53.3, which would be a decline from the 53.9 in the previous report. The UK economy is in robust shape, but unfortunately the pound gets dragged around by the news relating to Brexit.

The US ISM non-manufacturing report will be announced at 3pm (UK time), and traders are expecting a reading of 59.3. The September reading was 61.6 – its highest level in over a decade.

EUR/USD – has been diving lower since late September and if it holds below the 1.1510/00 region, it could pave the way for the 1 1300 area to be retested. A move to the upside could run into resistance at 1.1587 – the 100-day moving average.

GBP/USD – surged at the end of last week, and if the 1.3000 mark is retaken and held, it could pave the way for 1.3250 to be tested. If the market turns over again, it could target 1.2661. 

EUR/GBP – has been pushing lower since August, and if it holds below the 200-day moving average at 0.8837, it might bring 0.8725 into play. A rally might encounter resistance at 0.9000.

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 114.73. Support might be found at 111.39. 

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