Overnight, China released the latest manufacturing and non-manufacturing reports, which came in at 50.0 and 53.4 respectively.
The manufacturing reading was the weakest in over two years The Chinese economy has cooled in recent years and the reports underlines the decline in economic activity. Stocks markets in Asia are mixed and the changes on the day are relatively small. On Wall Street, the major equity benchmarks closed a little in the red as investors are slightly nervous about US-China trade discussions. It was reported that Peter Navarro, advisor to Donald Trump, will be attending the dinner with China’s Xi Jinping, and this weighed on sentiment given Mr Navarro’s tough stance on China.
The G20 meeting in Argentina kicks off today and the focus will be on the US-China relationship. With President Trump, the only thing you can expect is the unexpected. There has been a lot of back and forth in relation to how close they are to doing a deal. Yesterday, Mr Trump declared, they are close to do an agreement, but he doesn’t ‘know if he wants to do it’. The strained trading relationship between the two economic power houses has been one of the issues hanging over global stock markets.
Last night, the Federal Reserve released the minutes from the latest meeting, and it hinted at a rate hike in December. A couple of policy makers feel that rates are near the neutral rate, and traders feel the central bank is less hawkish than it was in early October.
Sterling suffered yesterday as traders were worried there is such little support for Theresa May’s draft agreement, we might wind up in a ‘no-deal’ situation. MPs will vote on the deal on 11 December, and unless there is a swing in sentiment to back Mrs May, sterling is likely to remain under pressure.
Oil surged yesterday after it was reported that Russia are keen to trim oil production. OPEC and other major oil producers will meet next week, and there is speculation a coordinated production cut will be announced. When it comes to oil, politics is usually in play. Russia and the US are not on the best terms at the moment due to the situation in Crimea. Moscow might be more likely to cut production as a way of getting back at the US.
Italian unemployment and inflation are due out at 9am (UK time) and 10am (UK time) respectively, and economists are expecting the jobless rate to hold steady at 10.1%, and CPI rate to be 1.6%. The economy has been struggling lately, and the government is in the spotlight because of the budget row with Brussels, and any further signs of economic weakness might weigh on investor sentiment.
Eurozone flash CPI for November will be released at 10am (UK time) and traders are expecting a drop to 2% from 2.2% in October. Recently, Mario Draghi, the head of the European Central Bank (ECB) said he expects inflation to fall due to the drop in oil prices. The eurozone is undergoing through a soft patch, and any signs of weakness is likely to put pressure on the currency.
The Canadian economy is in good shape, and even though the growth rate has been a bit volatile recently, is has been broadly pushing higher over the past two years. The unemployment rate is only a fraction above the lowest level since the credit crisis. The core inflation rate has been rising steadily for over one year, and this underlines the continued increase in demand. At 1.30pm (UK time) Canadian GDP will be announced, and on a quarterly annualised basis, traders are anticipating 2%.
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 1.1215 area to be retested. A move to the upside could run into resistance at 1.1533 – the 100-day moving average.
GBP/USD – has been broadly pushing lower since September and if the bearish move continues, it might target 1.2661. A break above 1.3000 might bring 1.3174 into play.
EUR/GBP – surged in mid-November and if the bullish trend continues it might 0.8939 or 0.9000. A drop below 0.8834 – 200-day moving average, might bring 0.8800 into sight.
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.