The optimism in European equity markets continued yesterday as the FTSE 100 hit its highest level since early October.
The DAX and CAC 40 both posted gains too and they were not too far away from their respective 2019 highs. There wasn’t any major macroeconomic news yesterday, but the positive momentum from Monday rolled over.
US equity markets were relatively quiet yesterday with the S&P 500 closing fractionally higher, while the NASDAQ 100 posted modest gains. Trade talks between the US and China continue this week, and even though the updates have been infrequent in recent months, they have been generally positive. A US Chamber of Commerce official said they are at the point where, a deal is more likely than not.
Sterling sold-off yesterday during the day as the clock is ticking down to Brexit, and as it stands we are heading for a no-deal scenario. On Monday night, MPs voted down the four proposals, which means it is back to the drawing board. In order to avoid a hard Brexit, something new must be agreed between now and the 12 April. In the late afternoon, the pound pushed higher after Prime Minister May said she would need another extension. Mrs May has reached out to Jeremy Corbyn to try and help break the deadlock.
The UK construction PMI report ticked up slightly to 49.7, from 49.5. Any reading below 50.0 indicates a contraction, and the negative growth isn’t a shock considering that some members of the construction sector have been holding off on projects until further clarity in relation to Brexit is mapped out.
Overnight, the Caixin survey of Chinese manufacturing was announced, and the reading was 54.4, and that compares with the February reading of 51.1. It is worth nothing that the official and Caixin survey of Chinese manufacturing earlier this week showed improvements. Stocks in Asia were also helped along by a report that Beijing and Washington DC are close to finalising a trade deal. It is believed that 90% of the trade negotiation has been done, but the last 10% of the talks are likely to be tough.
Eurozone PPI in February came in at 3%, narrowly missing the 3.1% forecast, and the January reading was revised lower to 2.9% from 3%. This might lead to a subdued CPI reading in the months to come as it suggests that demand isn’t that high.
Major eurozone countries will announce the final service PMI readings this morning between 8.45am (UK time) and 8.55am (UK time). Italian, French and German reports will be released, and economists are expecting 50.8, 48.7 and 54.9 respectively. The UK services PMI report is due out at 9.30am (UK time), and the consensus estimate is 51. Eurozone sales will be announced at 10am (UK time), and on a monthly basis, dealers are expecting an increase of 0.2%.
The ADP employment report will be in focus today, and it will be revealed at 1.15pm (UK time) and traders are expecting 184,000. US ISM non-manufacturing will be released at 3pm (UK time), and the consensus estimate is for a reading of 58, which would be a decline from the 59.7 registered in February.
Oil edged higher yesterday as traders were worried supply levels as a terminal in Venezuela is out of commission, and there is a possibility of new sanctions being imposed on Iran. The improvement in China’s manufacturing reports earlier this week added to the positive move too. The American Petroleum Institute report was announced last night, and oil inventories rose by three million barrels. At 3.30pm (UK time), the Energy Information Administration will be announced and traders are expecting a decline of 1.6 million barrels.
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 1.2981, 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 largely been pushing higher throughout 2019, and if it continues it might target the 112.00 area. 109.55 might act as support.
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