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Stocks rally as US-China relationship thaws, US jobs report in focus

European equity markets had a mixed session yesterday. Even though they got off to a good start, ground was lost from the late morning onwards, and the FTSE 100 and CAC 40 finished in the red, while the DAX 30 and the FTSEMIB 40 ended slightly higher.

We are well off the lows of October, but it was a little concerning that major indices couldn’t finish on a higher note. Whenever there is a bounce back from a major sell-off, traders begin to wonder if the market is creating a higher low, before the next move lower, or is this the beginning of the turnaround? It is worth noting the heavy losses in the oil market weighed on Royal Dutch Shell and BP – both large constituents of the FTSE 100.

US indices finished on a strong note, and the bullish mood was helped by President Trump, who stated he had a ‘long and very good’ conversation with China’s Xi Jinping, and trade was discussed. The leaders have meetings lined up at the G 20 summit, which is later this month. Reporting season continues, and last night Apple posted fourth-quarter earnings per share of $2.91, which easily topped the $2.78 that analysts were expecting. Sales were $46.89 billion, while forecasts were $47.50 billion.  

Asian stocks markets had a stellar session overnight, as the comments from Mr Trump in relation to China boosted sentiment in the Far East. It was reported that President Trump asked his cabinet to draft a trade deal, and this has lifted sentiment.

Sterling enjoyed a bullish session yesterday as traders clung on to the news story that the UK and the EU have struck a tentative deal in relation to financial services. A government official said the newspaper article was ‘unsubstantiated’ – but since the individual didn’t dismiss the story outright, dealers are still a little optimistic. The Bank of England update was uneventful. Interest rates and the stimulus package were left unchanged. Growth forecasts for the next two years were trimmed, and so was next year’s inflation outlook, but the wage forecast was upped.

At 12.30 (UK time), the US non-farm payrolls report will be released. The consensus estimate is 190,000. The September report of 134,000, might be revised due to the disruption caused by the hurricane. The unemployment rate is tipped to hold steady at 3.7%. On a yearly basis, the average earnings are expected to rise to 3.1%, up from 2.8%. The earnings component will be closely watched and should we see a firm number, the fears surrounding hiking interest rates could be renewed.

The US dollar pulled back from a 16-month high yesterday, and traders booked their profits after its recent good run. The ISM manufacturing report dipped to a five month low, and the new orders component was the weakest since April 2017. The greenback was already firmly in the red before the report, but the reading didn’t help matters. The relatively cheap dollar, might attract buyers if the overall jobs report is robust.

Canada will announce their jobs report at the same as their southern neighbour, and the unemployment rate is expected to hold steady at 5.9%, and the employment change is expected to show that 10,000 jobs were added in October. The devil is in the detail, if jobs are added, it important to see a sizeable proportion of full-time jobs being created.

Oil continues to be under pressure after OPEC raised production to its highest level since December 2016.

Italy, France and Germany will all reveal the final manufacturing PMI reports for October, and economists are expecting 49.6, 51.2 and 52.3 respectively.

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 1.1593 – the 100-day moving average.

GBP/USD – surged yesterday as 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 111.37. 

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