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Europe set for lower open ahead of Bank of Canada and US Beige Book

Traders set for lower European open

The return of US markets introduced a much softer tone, after the gains for European markets on Monday, as investors continued to mull over the wider impact of Friday’s poor payrolls report.

Various downgrades to US growth prospects, with Goldman Sachs downgrading its economic outlook for the US economy appears to have prompted a reassessment of where markets might go next, in the face of a possible paring back of stimulus measures in the coming months.

Against these concerns of a weaker outlook, the August jobs report has also served to crystallise concerns, that after a decent summer, the economic recovery is rolling over, at around the same time central banks are starting to look at reducing some of their emergency stimulus measures.

It was notable that while we saw the Dow and S&P500 slip back yesterday, the Nasdaq outperformed, finishing higher on the day, while the US dollar moved higher.

The slide in US stocks and a mixed Asia session looks set to translate into a weaker European open this morning, although the Nikkei 225 has maintained its resilience moving above the 30,000 level for the first time since April.

With Fridays disappointing August payrolls report still fresh in the memory, today’s JOLTS report for July will be a timely reminder that the jobs market still has a long way to go before normalising.

It’s also important to note the lag the JOLTS report has, with expectations that we could still see vacancies slip back from the 10m number we saw in June, due to the huge number of job gains in the July report of over 1m new jobs.

The Fed’s Beige Book of economic conditions is also set to give investors a snapshot of the US economy, and where it is in relation to the previous survey. In July it said that the economy had strengthened showing moderate to robust growth, which was a significant upgrade to the previous report in May. On the downside there was an acknowledgment that supply disruptions were becoming more widespread, with shortages of labour and raw materials, causing problems. 

There was also concern about prices which were increasing at an “above average pace” with several regions expecting input costs and selling prices to clime further in the coming months.

With the slowdown in hiring seen in August, and general increase in prices seen since then, the most noteworthy part is likely to whether the view of the US economy, has changed and whether businesses remain as confident about hiring commitments as they were back then.  

Before that we have another central bank meeting, following on from yesterday’s RBA meeting, which saw the Australian central bank follow through with its commitment to taper weekly bond purchases, however in a dovish twist they committed to extending them into February 2022.

The Bank of Canada is likely to want to keep a lower profile today with an election coming up on the September 20th with the central bank acknowledging the weaker economic outlook, keeping asset purchases steady at C$2bn a week, after scaling them back by C$1bn a week in July, and leaving rates unchanged.  

Like everyone else Canada is also suffering from above average inflationary pressure, with CPI up at 3.7% in July, well north of the central banks target band, however like every other central bank they have been peddling the line that it is transitory in nature.

Bitcoin prices also plunged yesterday sliding to a four-week low, at the same time as El Salvador adopted the crypto as legal tender.

EURUSD – the failure at 1.1910 last week keeps the bias towards the downside and a move back to the 1.1800 area. The 1.1780/90 area remains the key support area. We need to overcome the 1.1920 area to retarget the 1.1975 level.

GBPUSD – the 1.3900 area remains a key resistance area and have now slipped below trend line support from the August lows, potentially opening up a move back to the 1.3680 area. Resistance now comes in at 1.3870.

EURGBP – failed at the 0.8610 area yesterday, and while below the bias remains for a move back to the 0.8550 area, on the way to 0.8520. Above 0.8610, targets the 0.8640 level.

USDJPY – squeezing back to trend line resistance from the July highs at 110.35. This needs to hold to prevent a move back to the 111.00 area. While below 110.40 the bias remains for a retest of the 109.10 area. 


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