European and US stock markets rallied yesterday as a lot of the fear in the markets evaporated thanks to the actions of the Chinese authorities.
Earlier this week stock markets in mainland China reopened after the Lunar New Year celebrations and the indices plunged, so Beijing took steps to alleviate the situation. Tougher rules in relation to shorting stocks were introduced as well as restrictions on fund managers reducing their positions.
The result was that equity markets in China finished higher yesterday, and that positive sentiment spilled over to the West. The FTSE 100 plus the DAX recovered all the losses that were incurred on Friday. The NASDAQ 100 hit a new record-high, while the S&P 500 traded above 3,300, but closed just below the mark. The rebound was seen across many markets as copper and oil posted large gains too – mining as well as energy stocks were assisted on the back of the commodity rally.
The Chinese central bank didn’t feel the need to intervene in today’s session as the organisation said there was ‘ample liquidity’. Stock markets in China rallied overnight.
The surge in the oil market during the day was on the back of a report that OPEC+ are contemplating cutting production by between 800,000 and 1 million barrels per day in an effort to try and put a floor under the oil market. On Monday there was talk the group of major oil producers were thinking of reducing output by 500,000 barrels, but that didn’t stop WTI from dropping below $50 – a 13 month low.
Sterling enjoyed a move higher yesterday as traders bought into the currency in the wake of the large fall on Monday. For the rest of the year there is going to be toing and froing about the UK-EU relationship post the transition period so the politics is likely to trump economic reports. Yesterday the UK construction PMI reading improved from 44.4 in December to 48.4 in January. It is possible that activity has picked up on the back of the Conservative party win at the election – home builders Crest Nicholson as well as McCarty & Stone both cited a rise in client interest in the wake of the election.
Between 8.45am (UK time) and 9.30am (UK time) a number of major economies will announce the final readings of the services PMI reports. Italy, France, Germany and the UK will publish their updates, and economists are expecting 50.2, 51.7, 54.2, and 52.9 respectively. Keep in mind the final readings of the European manufacturing PMI reports showed an improvement in activity earlier in the week. The manufacturing industry in Europe is in contraction territory, but it seems to have bottomed out.
Eurozone retail sales will be posted at 10am (UK time), and it is tipped to be show a drop of 0.9% on a monthly basis.
The ADP employment report will be posted at 1.15pm (UK time) and the consensus estimate is 156,000, which would be a drop off from the 202,000 that was registered in December. Shortly afterward, the US trade balance will be posted. The trade deficit is expected to increase to $48.2 billion from $43.1 billion.
The final reading of the ISM services PMI update is tipped to be 53.2. The ISM non-manufacturing reading is forecast to come in at 55. The announcements will be posted at 2.45 (UK time) and 3pm (UK time) respectively.
Oil has seen major volatility this week so the Energy Information Administration inventory report will be of particular importance. The figures will be posted at 3.30pm (UK time). US oil and gasoline inventories are expected to increase by 2.8 million barrels and 2.05 million barrels respectively.
EUR/USD – has been pushing lower since late December and while it holds below the 50-day moving average at 1.1094, the bearish move might continue. Support might be found at the 1.0900 area. A break above 1.1172 should pave the way for 1.1249 to be retested.
GBP/USD – sold-off sharply on Monday but while it holds above the trend line from the late December lows, the broader positive trend should continue. A break above 1.3284 should pave the way for the 1.3500 area to be retested A break below the trend line might find support at 1.2900.
EUR/GBP – surged yesterday but while it holds below the 0.8600 mark, the broader bearish trend is likely to continue. A drop below 0.8387 might bring 0.8276 into play. Resistance might be found at 0.8600.
USD/JPY – has pushed higher and while it holds above the 50-day moving average at 109.20 the wider bullish trend should continue, and it might retest the 110.00 area. A move below 108.30 might put 107.65 on the radar.