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World celebrates May Day, Fed in focus

The FTSE 100 lost ground yesterday, on the back of disappointing manufacturing reports from China. 

When the Chinese economy grew by more-than-expected in the first-quarter, there was a belief in some sections of the investment community that the country was beginning to turn a corner. The manufacturing updates painted a picture of the economy standing still, rather than lifting-off. Given that the FTSE100 is relatively overweight when it comes to mining stocks. The major Continental markets are closed today as it is May Day, and volatility in the UK market is tipped to be low.

The Fed will release their interest decision at 7pm (UK time), and the press conference will follow at 7.30pm (UK time). Last week it was reported that the US economy grew by 3.2% in the first-quarter, but a closer look at the report shows that inventories were relatively high, and investment was soft. Earlier this week, the core PCE reading dropped to 1.6% - its lowest level since January 2018. The Fed’ inflation target is 2% ,and seeing as the cost of living in going in the opposite direction, the central bank are likely to keep rates on hold, and use neutral to dovish language in their update.

Yesterday, we saw mixed housing data from the US. The Case-Schiller update showed that annual house price grew at their slowest rate in seven years in February, while pending home sales surged by 3.8% in March, and that was a big improvement on the 1% fall in February. The US housing market has been cooling in recent years, and the last thing the market needs is an interest rate hike – which is unlikely in the near-term.  

The NASDAQ 100 finished in the lower last night as a sharp sell-off in Alphabet – Google’s owner, weighed on the index. Worries about a slowdown in revenue growth hurt the tech giant. After the closing bell, Apple posted strong quarterly results. EPS were $2.46, which topped the $2.36 forecast. Revenue was $58.02 billion, and the consensus estimate was $57.37 billion. The firm announced a stock buyback scheme of $75 billion, and the dividend was upped by 5%.

Overnight, the Chinese markets remained closed at it is May Day.

The euro had a good day yesterday for a change. Eurozone unemployment dropped to its lowest level in over 10 years, and the economy grew 1.2% on an annual basis, topping the forecast of 1.1%. Demand in the region is increasing as France, Spain, Italy and Germany all posted increases in their latest respective inflation reports, but that might be on account of the recent six month highs in the oil market. In other good news, the Italian economy emerged from recession, as it grew by 0.2% in the first-quarter.  

Sterling gained round against the soft US dollar, and a spokesman for the Prime Minister said that talks with the Labour Party have been constructive.  

There are a number of economic reports from the UK that are due out at 9.30am (UK time). The manufacturing PMI report is tipped to be 53, which would be a fall from 55.1 in March. Mortgage approvals and mortgage lending are expected to be 64,850 and £3.54 billion respectively.

At 1.15pm (UK time) the US ADP employment report will be announced and economists are expecting a reading of 180,000, which would be a big jump up from 129,000 in March.

The US ISM manufacturing PMI report is due out at 3pm (UK time), and traders are expecting a reading of 55 ,which would be a slight dip from the 55.3 reading in March.

The American Petroleum Institute report showed that oil stockpiles jumped by 6.81 million barrels. Today at 3.30pm (UK time), the Energy Information Administration update will be released and oil inventories are expected to increase by 1.3 million barrels.   

EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might target the 1.1000 area. Resistance might be found at 1.3220.  

GBP/USD – has been driving higher since early December, and if it holds the 200-day moving average at 1.2964, it might target the 1.3200 area. A move to the downside might retest the 1.2775 region.

EUR/GBP – while its holds below the 200-day moving average at 0.8813, its outlook is likely to be negative. 0.8471 might act as support. A rally might encounter resistance at 0.8800.  

USD/JPY – has been largely been pushing higher throughout 2019, and a break above the 112.00 area, might bring 113.70 into play. 110.77 – 100-day moving average, might provide support.

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