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Stocks rally post China data, all eyes on European manufacturing

European stock markets finished last week on a positive note. 

The news that US-China trade talks went well raised investor confidence. It was reported that Beijing have made unprecedented offers to the US in relation to technology transfers ,and that gives an indication of how serious the Chinese government are when it comes to trying a reach a deal. The progress made in the talks helped the European equity markets continue in their rally that began in late December.

US markets closed higher on Friday on the back of the progress made in US-China trade talks. The S&P 500 rallied 13.1% in the first-quarter – its strongest first-quarter performance since 1998.

The core PCE reading dropped back to 1.8% from 2%. The report is the Fed’s preferred measure of inflation, and it adds weight to the argument the US central bank should keep monetary policy on hold for the foreseeable future. Larry Kudlow, an economic advisor to President Trump, said the Fed should cut rates by 50 basis points immediately. Mr Kudlow claims he is echoing the views of the US president, and even though the US central bank is independent, the remarks give us an insight into the minds of some influential people.   

Theresa May’s withdrawal agreement was defeated for a third time on Friday, and this time it lost by 58 votes. Mrs May lost the vote again, but she has clearly worn down some MP’s. Notable Brexit supporter, Jacob Rees Mogg backed the withdrawal agreement. The DUP voted against it, but Nigel Dodds – the DUP’s leader at Westminster, commented that he would rather stay in the EU, than risk breaking up the United Kingdom. This is a sign that attitudes are changing.   

The UK is set to leave the EU without a deal on 12 April, unless there is a new arrangement agreed upon between now and then. There is talk of a re-run of the indicative votes on the customs union and another referendum, along with other Brexit proposals and there might even be a fourth vote on Mrs May’s withdrawal agreement. The political uncertainty weighed on sterling at the back end of last week ,but the currency markets still haven’t woken up to the possibility of a no deal Brexit.

Palladium posted its worst weekly decline since 2016 as concerns about a bubble prompted traders to rush for the exit. Platinum had a tough week too as it was dragged around by palladium.

In the final-quarter of 2018, the UK economy grew by 0.2% on a quarterly basis – meeting forecasts, and it grew by 1.4% on a yearly basis, which topped the 1.3% forecast.

Over the weekend, China posted the official manufacturing and non-manufacturing figures. The manufacturing report came in at 50.5 and the February reading was 49.2. The non-manufacturing reading was 54.8, and that compares with 54.3 in the previous update. Last night, the Caixin survey of Chinese manufacturing PMI was 50.8, which was an improvement from the 49.9 reading in February. Stock markets in Asia rallied overnight on the back of the Chinese reports.

European manufacturing reports will be released between 8.45am (UK time) and 9.30am (UK time). Italian, France, German and UK manufacturing PMI reports will be in focus this morning, and traders will be paying close attention to the German report seeing as the flash reading was 44.7 – its lowest since July 2012. 

Eurozone CPI and core CPI will be announced at 10am (UK time) and the consensus estimate is for 1.5% and 1% respectively. It is worth remembering that last week German CPI slipped to 1.5% from 1.7%, and French CPI dropped to 1.3% from 1.6%, and both reports undershot economists’ forecasts. It would appear that demand is cooling in the currency bloc, and this might encourage the European Central Bank to keep monetary policy loose.

We will get a flavour for US retailer’s appetite later today as US retail sales will be posted at 1.30pm (UK time) ,and traders are expecting a reading of 0.3%. The ISM manufacturing PMI report will be announced at 3pm (UK time), and traders are expecting a reading of 54.5, which would be a slight improvement from the 54.2 registered in February.

EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might retest the 1.1176 area. Resistance might be found at 1.1448.  

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 1.3380 area. The 1.2775 area region might act as support.

EUR/GBP – while its holds below the 200-day moving average at 0.8840, 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 edging lower since the start of the month and a break below 109.50 might bring 108.50 into play. If the wider rally continues, it might retest the 112.00 area.





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