European equity markets are poised to open higher as stocks in Asia are marginally higher after positive economic data from China and Japan.
The Caixin survey of Chinese manufacturing for June came in at 50.4, while the market was expecting a reading of 49.5, and that was an increase on May’s reading of 49.6. The Japanese Tankan survey for second-quarter manufacturing and non-manufacturing both increased on the quarter and exceeded estimates.
Brent Crude oil and WTI lost 12.9% and 13.2% respectively over the first-half of the year as a mixture of over-supply and sliding demand has put severe pressure on the energy. Commodity hunger countries like China and India are not long in need of oil as they once were, and to make matters worse, oil producers like Nigeria and Libya are increasing production.
There are some small signs that US production is dipping. The Energy Information Agency (EIA) last week showed us that US oil output dropped by 100,000 barrels per day to 9.3 billion barrels per day. The recent Baker Hughes report, showed a decline of 2 rigs to 756 rigs. Keep in mind, the number of active rigs this time last year was 341 rigs. The slight decline in US oil production is unlikely to have a major impact on the price as the production levels were relatively high to begin with.
The non-farm payroll report from the US on Friday at 1.30pm will be the highlight of the week. The consensus is for 183,000 jobs to be added in June, and that compares with the 138,000 added in May. Unemployment is tipped to remain at 4.3%, and the average monthly earnings is anticipated to increase to 0.3% from 0.2%.
US central bankers are happy with the state of the US economy, and additional monetary tightening is on the cards. The Federal Reserve Chair, Janet Yellen, said any change to the monetary policy would be ‘timely and predictable’. The low unemployment rate in the US is impressive, but wage growth is very small and it is these fine details that traders should keep an eye on to try and gauge what the US central bank will do next.
The European Central Bank had to clarify their policy will remain in place for the foreseeable future even though the economic health is improving. The encouraging outlook helped the EUR/USD reach its highest level in one year last week, which in turn hit eurozone stocks. The region saw inflation tick higher in June, and the services purchasing managers index (PMI) for France, Germany, Italy and the eurzone will be released on Wednesday.
Sterling was helped by the hawkish comments from Bank of England members last week. Mark Carney talked about the possibility of removing some of the stimulus, and Andy Haldane argued for higher interest rates. The FTSE 100 was put under pressure by the hawkish sentiment. The UK manufacturing PMI report will be revealed today at 9.30am, and the services PMI and manufacturing production PMI report will be announced on Wednesday and Friday respectively.
EUR/USD – 1.1400 is acting as support, and if it holds the resistance at 1.1495 will be the next price to watch. A drop back below 1.1400 could see it return to 1.1300.
GBP/USD – has just dipped below 1.3000, and is receiving support at 1.2977. If the supports holds, bulls will be looking to 1.3047 and 1.3120. A break below 1.2977 could bring the support at the 50-day moving average at 1.2873 into play.
EUR/GBP – 0.8770 is providing support, and if the level holds the resistance at 0.8844 and 0.8880 will be the upside targets. A break below 0.8770 would bring the support at 0.8738 into play.
USD/JPY – the 100-day moving average at 111.78 is acting as support, and bulls will be looking to the resistance at 113.00 and 114.36. A move below the 100-day moving average at 111.78 will put the 200-day moving average at 111.25 into sight, and 110.30 is the next support level.