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Apple update adds to sour sentiment

European stock markets saw a major swing yesterday, and they endured a severe sell-off at the start of the session, but there was rally in the afternoon, and the FTSE 100 and DAX managed to end the day slightly in positive territory.

The major US indices also saw a volatile session, whereby it also endured heavy losses initially, but managed to eke out a small gain in in the end.

In afterhours trading on Wall Street, Apple lowered its first-quarter guidance due to weaker sales in China. The update sent the stock lower, and it out pressure on US index futures. Asian stock markets lost ground overnight on the back of the Appel update.

Disappointing manufacturing numbers from China on Wednesday sparked concerns that the second-largest economy in the world is cooling. The Caixin survey of Chinese manufacturing swung to contraction territory – its first in 19 months. The report added weight to the argument that the global economy is slowing down.

The Italian banking sector was in the news for all the wrong reasons yesterday, as the European Central Bank (ECB) appointed temporary administrators to Banca Carige. The struggling financial institution failed to meet a deadline recently to beef up its balance sheet, and over half its board members stepped down. The fact that the ECB had to intervene sent an extremely negative message and investor’s dumped Italian stocks and the euro. The US dollar benefitted from the safe-haven play.  

The manufacturing figures from the eurozone were worrying too. The French and Italian reports showed negative growth in December, while the German update showed a small level of growth – its lowest reading since early 2016. The region is also undergoing an economic slowdown. The US manufacturing PMI report dropped to its lowest reading in 15 months, and this is playing on traders’ minds too.

The gold market reached a fresh six month high as dealers are a little less fearful about the Federal Reserve pursuing a hawkish monetary policy. The metal has traditionally attracted safe haven flows, and that might also be a factor in its sharp upward move in recent weeks.

The oil market saw enormous volatility yesterday. Concerns about overs-supply and weak demand pushed the energy into the red, and then tanker tracking data suggested that exports from Saudi Arabia fell, and that triggered a rally.  

The UK construction PMI report will be released at 9.30am (UK time) and traders are anticipating a reading of 52.9, and keep in mind the previous reading was 53.4. UK house prices are cooling, and the Brexit uncertainty is a factor too.

At 1.15pm (UK time), the US will release the latest ADP employment report and the consensus estimate is 178,000, which would be a slight drop from November’s 179,000.

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 1.1215 area to be retested. A move to the upside could run into resistance in the 1.1510/00 area.

GBP/USD – has fallen back into its wider downward trend that has been in place since September, and support might come into play at 1.2476. A rally might run into resistance at 1.2815.    

EUR/GBP – has been broadly moving higher since mid-November, and if the positive move continues it might target 0.9100. A pullback might find support at 0.8900 – 100-day moving average.   

USD/JPY – has been edging lower since October, and if the negative move continues, support might be found at 104.63. A bounce back might run into resistance at 111.05 – 200-day moving average.

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