European stocks largely finished lower yesterday as a directionless trading session encouraged profit taking.
Dealers had no positive news to latch onto, and that was part of the reason equities edged lower. Global trade remains a factor. US-China trade talks continue this week, and trade tensions between the US and the EU have heated up a little, and that has gotten traders a little worried too. US stocks ended the day a little higher last night after President Trump hinted the March deadline for the trade agreement might be pushed back. The US president said the March deadline is not a ‘magical date’ and traders reacted well to the signs of flexibility. Equity markets in Asia are mixed on the back of Trump’s comments.
The EU made it clear they will hit back if President Trump decides to start a trade war with the bloc. It was reported that Mr Trump has no immediate plans to slap tariffs on European vehicles or auto parts, but that’s not to say he won’t threaten to down the line. The weakening state of the eurozone economy might make Brussels more susceptible to threats from President Trump.
The German economy continues to be under pressure. The ZEW economic sentiment report came in at -13.4, which was an improvement on the -15 reading in January. The survey has been in negative territory for the best part of one year, and that hammers home the point that sentiment is weak. Germany is the powerhouse of Europe, but as we saw last week, the economy just about avoided recession.
Sterling received a boost yesterday on the back of the solid UK wages and employment data. Earnings, excluding bonuses, grew by 3.4% and the November figure was revised higher to 3.4% - it was the joint highest reading in over a decade. The recent dip in inflation means that workers are receiving a nice lift in real wages, and that might translate in higher spending. The jobless rate held steady at 4%. The very low unemployment rate might be the driving factor behind the rise in wages, whereby employers must offer higher salaries in order to entice workers.
Metals have had a good run this week so far. Gold reached a 10 month high, palladium notched up another all-time high and copper hit a level not seen since July 2018. The dip in the greenback helped commodities drive higher.
German PPI will be released at 7am (UK time) and on a monthly basis, the reading is topped to be -0.2%, and that would be an improvement on the -0.4% in December.
At 11am (UK time) the UK CBI industrial order expectations report will be released, and economists are anticipating a reading of -3, and that compares with -1 that was registered in January.
The Federal Reserve will release the minutes from last month’s meeting at 7pm (UK time). In January, the US central bank kept rates on hold, meeting expectations. The update last month gave off the impression the central bank will take a more neutral stance regarding monetary policy. Some policymakers might be content to sit on their hands for a while, and the update should provide additional detail about the decision to keep rates unchanged.
EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might retest the 1.1216 area. Resistance might be found at 1.1400 or 1.1500.
GBP/USD – has been driving higher since early December, and if it holds above the 200-day moving average at 1.3000, it might retest the 1.3200 area. The 1.2775 area region might act as support.
EUR/GBP – while its holds below the 200-day moving average at 0.8862, its outlook is likely to be negative. 0.8620 might act as support. A rally might encounter resistance at 0.9000.
USD/JPY – has been on the rise since early January, and if the bullish move continues it might target the 112.00 area. A break below 109.50, might bring 108.50 into play.