European markets enjoyed a largely positive session yesterday on the back of some fairly upbeat October manufacturing PMI numbers, while US markets also finished higher on the positive lead from Europe, while the S&P500 pushed itself above 2,100 for the first time since August. It would appear that this renewed confidence in the US maybe derived from the belief that weaker economic data would probably keep the Fed on hold, while an improvement in economic data would suggest that the US economy is able to absorb the effects of a modest rise in rates next month, as US stocks push back towards their highs in an almost goldilocks scenario for investors. The rally in Europe was helped by Italian and German manufacturing PMI’s showing a bigger then expected improvement in October, with the jump in German activity all the more surprising given the fallout from the VW scandal. In the UK we also saw a sharp rebound in manufacturing PMI to 55.5 to round off a day that was fairly positive, save from continuing concerns about weaker Chinese growth which saw the FTSE100 underperform due to its heavy weighting to the commodity sector. Bearing in mind that manufacturing had acted as a bit of a drag on UK Q3 growth the rebound in October, as we head into Q4 is very welcome and bodes well for a pickup in the UK economy as we head into the year end. Today’s construction PMI numbers for October are expected to pick up on the upbeat theme ahead of this week’s Bank of England meeting and inflation report. After the strong construction report seen in September of 59.9, expectations are for a slight drop to 58.9. Given last week’s unexpectedly hawkish Fed statement this week’s economic data out of the US has taken on a much greater importance in the lead-up to Friday’s October payrolls report. The surprisingly upbeat assessment of the US economy appears in stark contrast to the recent economic data and yesterday’s ISM manufacturing report for October, didn’t do anything to allay investor concerns that the Federal Reserve could be misreading the economic outlook in the US. Economic activity in October slipped back again, this time to 50.1, from 50.2, its lowest level since May 2013, but more importantly the employment component hit 47.6, its lowest level since 2009, when the US economy finally came out of recession after the 2008 crash, while prices paid also remained weak at 39. The weak nature of the employment component of the ISM report could well act as a drag on Friday’s employment report, though Wednesday’s services report is likely to have more weight given the greater percentage the services sector contributes to the US economy. The only data on the docket today is September factory orders, and this is expected to remain weak, though an improvement to -0.9% is expected on the decline of -1.7% seen in August. EURUSD – we’ve found a short term base around the 1.0900 area, with the main support down at the May and July lows at 1.0820. We need to see a recovery back through 1.1115 to stabilise the current downward momentum. GBPUSD – after last week’s rebound off 1.5200 trend line support from the 1.4565 lows and subsequent bullish daily candle we need to take out the resistance at 1.5510, October highs and 200 day MA to suggest a move towards 1.5630. EURGBP – continues to look weak drifting below the 0.7145, 61.8 Fib retracement of the up move from 0.6935 to the highs this month at 0.7495. A move through 0.7145 has the potential to open up a larger move towards 0.7075. USDJPY – the September highs above 121.70 continue to act as strong resistance. Above 122.00 could suggest a return to the 124.00 area. We have support at the 120.20/30 area, with a break retargeting the 119.20 area. 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.
Europe to open higher after positive US finish
07:25, 03 November 2015 · By Michael Hewson