European stock markets endured a trifecta of negatives yesterday, basic resource and commodity stocks getting hit by a growth downgrade by the Asia Development Bank, the ripple out effects of the VW “defeat device” scandal, and a sell-off in pharmaceutical shares after comments from Democrat Presidential hopeful Hillary Clinton about taking action on “price gouging”. It doesn’t look like we’ll get any respite today either, given concerns about global growth aren’t likely to diminish any time soon, and this morning’s latest Caixin Chinese manufacturing PMI still points to a Chinese economy that is firing significantly below capacity. Having posted a 77 month low last month the preliminary September reading slipped further into contraction territory coming in at 47, and once again raising concerns as to why the various stimulus measures implemented by Chinese authorities aren’t having any effect. Of all the factors that we saw yesterday the one that is most likely to be a particular worry is the spill over effects this drama surrounding Volkswagen will have on the wider German economy in the weeks and months ahead at a time when their appears to be some evidence that growth may well be slowing in the euro area. It is estimated that 1 in 6 German jobs depends in some way on the car industry, as well as 17.9% of German exports, and this week’s events have put a huge dent in the panel work of how the German automotive industry is perceived by its customers globally. It is going to take quite a lot of skilled panel work to repair the dents in the “Made in Germany” brand, particularly given this scandal has exposed a deliberate attempt to deceive. What can they have been thinking? The implications for German GDP growth could well be significant in the coming months, if global trust is lost, not only for VW but also the rest of the European car industry, if evidence is uncovered that we aren’t seeing an isolated case. With Europe’s second biggest economy in France already struggling, with GDP expected to be confirmed at 0%, Europe can ill afford a setback to its main growth engine of Germany. As it is todays preliminary manufacturing and services PMI for France and Germany are expected to highlight the weakness of the European recovery story. Expectations for the latest French data have been set low with manufacturing set to come in at 48.6 and services 51. The German data is expected to show a modest slowdown with 52.8 for manufacturing and 54.5 for services, slightly down from the August numbers. More worryingly price pressures remain weak, no surprise given continued weakness in commodity prices, but this weakness will shift the focus later today onto a speech by ECB President Mario Draghi to the European Parliament in Brussels. In the wake of last week’s decision by the Federal Reserve not to raise rates immediately, expectations have been building that the ECB will extend its QE program in the face of a US central bank that could well start hiking rates by year end. ECB officials appear to have already been preparing the groundwork by suggesting that growth in the euro area has already started to soften, as per comments from Benoit Couere at the end of last week. Given that the current ECB program is barely six months old, and there remains 12 months to go it does seem premature to be talking about extensions or increases to the existing program. In all probability we’ll get the same old jawboning that the ECB remains prepared to act further if circumstances permit. EURUSD – the euro has continued to come under pressure sinking towards the 50 and 100 day MA’s at 1.1125-50. A move below here has the potential to retarget the lows this month at 1.1080 and lower towards 1.0820. While above these support levels the risk remains for a move back towards last week’s highs at 1.1400, and then on towards 1.1700. GBPUSD – the pound looks set to fall back towards last week’s lows at 1.5330 and the 200 day MA at 1.5340. A move below here could well see a test of 1.5240 trend line support from the April lows at 1.4565. We need a move back through the 1.5470/80 area to stabilise. EURGBP – having broken below triangle support at 0.7245/50 opens up the prospect of a move towards the 0.7100 level. Only a rebound back through the 0.7260 area negates this prospect, and argues for a return to the 0.7320 area. USDJPY – continues to trade in the broad triangular consolidation with triangle line resistance at 121.00, and support at the 119.15 area. The US dollar still looks vulnerable to a return to the 116.20 area seen a few weeks ago, but for now appears to be range trading between 118.50 and 121.50. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.