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Europe set for lower open after Trump speech falls short

Equity markets enjoyed another positive session yesterday in the lead up to President Trump’s speech to the economic club of New York with the German DAX once again cracking up to another multi-month high, and levels last seen in early 2018.

US markets also pushed on to post new record highs, with the S&P500 pushing briefly above 3,100, before sliding back into the close.

This optimism was driven primarily by the belief that the US President would resile from his threat to levy tariffs on the European auto sector, after comments last week from European Commission President Jean Claude Juncker that the US would stop short of putting them on.

There was also the hope that he would clarify last week’s comments from the Chinese Ministry of Commerce that both sides had agreed to roll back existing tariffs on each other’s goods in a phased implementation of any agreement.

As it happened the President did nothing of the sort, if anything he appeared to fire the starting gun on his 2020 re-election campaign, with a rambling love letter to his own administration littered with criticisms of the Federal Reserve, the EU and China, while at the same time telling his audience how great he is, despite the constraints of US monetary policy and the Democrat opposition.

There was no mention of EU auto tariffs, apart from criticism of EU trade policies, though he does need to make a decision on these tariffs by November 14th.

He also held open the prospect of a phase one US, China trade deal, but without any further details, apart from threatening an escalation if no deal was forthcoming.

It looks like he wants to keep his options open on those December 15th tariffs, so for now it’s as you were, as he looks to keep the option of December 15th tariff increases in reserve.

Markets in Asia have tumbled overnight, largely on the back of increasing unrest in Hong Kong, but also a little disappointed that we didn’t hear anything new from the US President. This is set to translate into a lower open here in Europe this morning.

The pound continues to look well supported in the short term, despite concern that the run higher in wages that we’ve seen in the last 12 months appears to be showing some signs of cooling. Having hit 3.9% earlier this year average earnings slipped back to 3.6% for the three months to September, and a four-month low. Unemployment, on the other hand slipped back to 3.8% from 3.9%, however there were some signs of a slowdown in hiring trends.

While worrying in the short term it doesn’t necessarily follow that the labour market is about to fall over, and certainly doesn’t warrant last week’s call by two bank of England policymakers that UK interest rates need to be cut.

Today we’ll get to see the latest UK CPI numbers for October which are expected to remain soft, thus  softening the blow of a slightly below expectations wages report yesterday.

Headline CPI is expected to fall to 1.6% in October from 1.7%, while core prices are expected to remain steady at 1.7%. a large part of this fall is likely down to sharply lower oil prices from this time last year when Brent prices were at over $80 a barrel.

Factory gate prices are also likely to remain soft which is a bit of a double edged sword as it implies that demand is soft, resulting in lower prices. That being said as a front runner for future inflation expectations it suggests that underlying inflation is likely to remain soft.  Input prices for October are expected to show a decline of 4.6%.

EURUSD – still looking soft with a bias towards the downside while below the 1.1050 area, with resistance also at the 1.1100 area. The risk remains for a move towards the 1.0980 level, with a break opening up a return to the October lows of 1.0880. Broader resistance can be found at the 1.1180 area and 200-day MA.

GBPUSD – found some support just above 1.2760 earlier this week but we need to push back above the 1.2980 area to sustain a move higher. The resistance at the 1.3000 area is a problem in the short term. The 200-day MA at 1.2680 is a big support level and while above it the scenario remains bullish for 1.3200.

EURGBP – feels like it wants to go lower despite rebounding off the 0.8558 area earlier this week. Resistance remains near the 0.8670 area. A sustained break below the 0.8570 level has the potential to open up a move towards the 0.8410 area and the lows this year.

USDJPY – edged beyond the 200-day MA and the 109.20/30 area last week but could run into resistance at the 109.80 area, though the bigger level is likely to be found at the 110.20 area. This is trend line resistance from the 2018 highs at 114.75. Support can be found near the 108.70/80 area.

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