Global stock markets had a terrible time last week as investor sentiment continued to sour. 

Concerns about higher interest rates in the US, along with political uncertainty in Italy as well as geopolitical concerns played on investors’ minds. Last week, Amazon and Alphabet both released quarterly figures and the revenue components missed market estimates and that added to the decline. The major US indices enjoyed a positive run over the summer, and there was a sense that valuations were lofty, particularly for the tech sector. The S&P 500 is now in correction territory, which means it had fallen more than 10% from the recent peak, and this underlines how large the correction has been.  The Shanghai Composite lost over 2% overnight after China confirmed that industrial profit fell for the fifth straight month. The Nikkei 225 and Hang Seng are showing small losses too. HSBC shares that are listed in Hong Kong rallied after the bank posted a 28% jump in third-quarter pre-tax profit.  

The FTSE 100 and DAX 30 both closed below their respective 200-week moving averages last week, and this underlines how negative market sentiment is, and it is worth noting that the CAC 40 closed just above it 200-week moving average. Even though the global sell-off originated in the US, European and Asian equity markets are suffering the most. S&P left their rating for the Italian debt market unchanged, but they lowered the outlook from stable to negative, which is likely to keep pressure on the Italian government bond market. More trouble is brewing in Europe as early exit polls suggest that the Christian Democratic Union and the Social Democratic Party (SDP) are set to lose ground at the Hesse state election. This is a setback for the collation partners as it points to a more politically dividend Germany. The SDP confirmed the coalition they might pull out of the coalition if they can’t show tangible results to their supporters.

Jiar Bolsonaro has been elected Brazil’s next President. The controversial candidate won on a ticket to clean up corruption, introduce liberal economic policies and pursue conservative social practices. A Tokyo listed Brazilian exchange traded fund jumped by 13% on the back of the news.     

Traders will be watching the core PCE report from the US, which will be released at 12.30pm (UK time), and the consensus estimate is for it to hold steady at 2%. The core PCE rate is the Federal Reserve’s preferred inflation measure, so a strong number spark fears of tighter monetary policy. The US economy grew by 3.5% in the third-quarter, so investors are aware the US economy is ticking along nicely. On Friday, the US dollar index reached a two-month high before retreating.

Philip Hammond, the Chancellor, will deliver the budget later today and dealers will be listening out for any potential change of policy regarding housing, business rates, VAT, and pension contributions. Some traders are wondering if the help-to-buy scheme will be extended, and there is chatter of higher stamp duty on foreign investors looking to purchase a property in the UK. There is speculation Mr Hammond could help out high street retailers by reducing business rates. Off-shore gaming companies could be targeted by higher tax. This will be the last budget before Brexit, and Mr Hammond confirmed that a ‘no-deal’ Brexit would require a new budget.  We also have a number of economic announcements from the UK to look forward to, the Nationwide house price survey will be announced at 7am, and the money supply, consumer credit, and mortgage approvals reports will be will be revealed at 9.30 (UK time).

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 1.1618 – the 100-day moving average.

GBP/USD – the push higher since mid-August is starting to look weak, and if it remains below 1.3000, it could put 1.2785 on the radar. A rally above 1.3000, could bring the 1.3250 region into play. 

EUR/GBP – has been pushing higher since mid-October and if it holds above the 200-day moving average at 0.8835 it should push higher. A break above 0.8900 might bring 0.9000 into play. If the wider downtrend continues, it might target 0.8800.

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 111.57 – 100-day moving average.

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