Europe’s markets enjoyed a decent move higher yesterday after the Chinese authorities unexpectedly announced a package of new stimulus measures designed to ease some of the pressure on the Chinese economy.
Against a backdrop of rising concerns about trade this was a welcome indication that Chinese authorities were going to be proactive in maintaining liquidity provisions in their markets.
A combination of this, and some decent results from Alphabet, Peugeot and UBS helped reinforce the positive vibe, for European and US investors in what is set to be another big week for earnings reports.
The German DAX again retested its 200-day MA at 12,750 but was again unable to climb above it, while the FTSE100 found the air a little thin above the 7,720 area. US markets also had a good day, however there was a significant lack of follow through as markets closed well below the highs of the day.
Peugeot’s results in particular were a big surprise as management announced strong numbers across their entire range of models, with the recently acquired Vauxhall-Opel unit also turning a profit, the first time that has happened since 1999. For an auto sector that has become increasingly bombed out as a result of concerns about the imposition of tariffs by the US on European cars, as well as the fallout from the diesel emissions scandal, this was welcome news.
There is also some optimism that today’s visit to the White House by EU Commission President Jean Claude Juncker and EU Trade commissioner Cecilia Malmstrom could lower concerns about a full-scale tariff war, if under reported comments made by German Chancellor Angela Merkel at the end of last week are any indication.
She stated that today’s visit might include a proposal on auto tariffs that might go some way to preventing the imposition of 20% tariffs on European cars. Currently the US imposes a 2% tariff on EU auto imports while the EU imposes a 10% tariff on US auto imports.
The dynamics are likely to be doubly interesting given recent comments by the US President where he called the EU a “foe” with the EU Commission promising to push back on the US President’s threats to impose a tax on all imports of cars from the European Union.
Certainly, President Trump was in bullish mood yesterday, claiming tariffs were great, as they’d forced the EU to the negotiating table while claiming the US has the best financial numbers on the planet, ahead of this week’s US Q2 GDP numbers, which are due this Friday.
Yesterday’s European flash PMI’s were somewhat of a mixed bag with services slightly weaker and manufacturing a little firmer from the June numbers, with some suggesting that the recent ratcheting up in trade rhetoric is acting as a drag. That certainly seem the case in Japan’s manufacturing PMI which slid sharply, however it still seems a little soon to come to that conclusion. Today&rsquo s German IFO business survey could increase those concerns if as expected it comes in a little softer, continuing a trend that has been in place since the end of last year, with expectations of a modest fall to 101.60 from 101.80.
In the UK the pound had a good day with some traders saying that the announcement that Theresa May the UK Prime Minister was taking over control of the Brexit negotiations. It does rather beg the question as to what else she’s been doing for the last two years, and whether the Lancaster House soundbite of “Brexit means Brexit” is slowly being confined to the dustbin of history. It is also likely to reinforce the belief in certain parts of the Conservative party as well as the country that a Brexit stitch up is being crafted, and that could be a problem in the coming months.
On the retail front after yesterday’s Kantar data showed that UK supermarkets had a bumper few weeks as a result of the hot weather and football World Cup, we may find that the rest of the retail sector had a more mixed time of it with the release of the latest CBI realised sales for July. These saw a big surge in June to 32 from 11 in May, so it wouldn’t be unexpected to see a sharp pullback to similar levels to May of between 10 and 15.
EURUSD – the failure to overcome the 1.1760 trend line resistance is likely to keep the euro under pressure in the short term. If we do get a move through 1.1760 we could well see 1.1850, with support at 1.1620.
GBPUSD – finding resistance at the 1.3160 for now with support at the 1.3070 level. Friday’s bullish reversal remains intact and could see a move back to the 1.3280 area. A move above the 1.3180 could well be the signal for such a move.
EURGBP – continues to slide back after failing to move above this year’s peak at 0.8970 last week. The drop below the 0.8920 area now opens up the prospect of a move towards the 0.8870 area.
USDJPY – after last week’s failure at the 113.20 area the US dollar slid back. The break below the 112.20 area prompted a deeper sell which found support at the 110.70 area, trend line support from the March lows. Support also comes in at 110.20.
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