Yesterday was the first trading day of the week for US stocks as it was a public holiday on Monday, and just like the end of last week, the US markets set the tone for the sentiment on both sides of the Atlantic.
Traders picked up where things left off on Friday. US index futures pushed lower in the day, which weighed on sentiment in Europe and then the large losses in big US tech stocks weighed on sentiment further.
The continued fear surrounding the US tech sector was the main story yesterday, and it is likely to be the focus of today’s trading session too. Relations between the US and China are deteriorating. President Trump talked about ‘decoupling’ the US economy from China as he wants his country to be less dependent on the nation. China is the workshop of the world as its cost of manufacturing is very low, so it won’t be easy to undone all the integration.
Mr Trump wants US companies to bring jobs back to the US, and he might target those who don’t, but want to sell into the American market. It seems as if the move will be aimed at gaining support ahead of the presidential election. The relationship with China is being strained and that was a factor behind the bearish move too.
The selling pressure waned a little as European indices finished off the lows of the session. Meanwhile, the NASDAQ 100 sold-off into the close and it ended down 4.77%. The S&P 500 lost 2.78%. AstraZeneca has paused a trail of one of its possible Covid-19 vaccines after a patient got ill without explanation. Republicans and Democrats have yet to agree on a relief package. It is believed that Republicans in the Senate might push for a $300 billion package, and the vote might take place on Thursday.
Overnight, China posted its CPI data for August. The reading was 2.4%, which met economist’s expectations. The July report was 2.7%. The PPI reading was -2%, in line with forecasts. The previous level was -2.4%. PPI can sometimes be an indicator for CPI, so in the months ahead we might see a move higher in CPI. Stocks in the Far East are lower.
Uncertainty surrounding the UK-EU trade situation weighed on the pound again. The prospect of the UK ending the transition period without a deal in place and operating on WTO terms from January hurt the pound. The ‘no-deal’ phrase is likely to be circulating around the news wires in the near-term, and unless progress is made with respect to a deal, the pound is likely to remain under pressure.
The US dollar index has been in an uptrend for one week, and the risk-off mood yesterday helped the greenback. In recent months, the dollar has attracted safe haven flows and that’s what we saw yesterday. The greenback has made several attempts at shaking off its broader negative trend in the last six weeks. If equities remain under pressure, the dollar’s popularity is likely to rise.
Brent crude and WTI suffered greatly as demand concerns ticked up. Rising tensions between the US and China does not bode well for oil. Saudi Arabia recently trimmed its oil shipment prices to both Asia and the US – traders took that as a sign that demand could be plateauing. At the start of the week, China’s total imports declined by 2.1% in August. The rise in coronavirus cases in a number of US states and India has chipped away at sentiment too.
Copper is an industrial metal and silver has industrial uses too. Both commodities are tied in with the perception about the health of the global economy, hence why they fell yesterday.
Canadian housing starts will be posted at 1.15pm (UK time). The consensus estimate is 220,000, and that would be a dip from the 245,600 registered in July.
The Bank of Canada (BoC) are expected to keep rates on hold at 0.25%, and the central bank is likely to keep the weekly CAD$5 billion government bond purchases in place too. At 3pm (UK time) the rate decision will be revealed. The Canadian economy is recovering from the pandemic, and last week it was revealed that the unemployment rate fell from 10.9% to 10.2%.
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 was a bullish engulfing and should it move higher, it might retest 0.9069. A move lower might find support at 0.8958, the 100 day moving average.
USD/JPY – while it holds below the 100-day moving average at 106.88, 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 107.87, the 200-day moving average, into sight.