Stock markets in Europe and the US finished firmly lower on the session, and the former fared the worst of the two. 

The deteriorating state of global politics is weighing on the markets, and geopolitical tensions are not just confined to Turkey. Mining companies have been hurt by the fear surrounding China. The second-largest economy in the world is still locked in a trade spat with the US, and the weaker-than-expected fixed asset investment and industrial production data from China earlier this week could be construed as a sign that President Trump’s tactics are working. Asian stocks finished off the lows of the session as Beijing have accepted an invitation from the US to re-start trade talks.

The FTSE 100’s relatively large exposure to commodity-related stocks caused the index to post a sizeable fall. Fear that China’s economy is cooling triggered a wave of selling on the metals market, as copper, platinum and palladium all racked up big losses. Eurozone stocks were hit as dealers are worried the crisis in Turkey will spill over into the region. Banks are exposed to Turkey and dealers are nervous that there could be defaults in the pipeline. The tech sector in the US performed the worst after Tencent, a Chinese tech conglomerate, finished lower after posting quarterly revenue and profit that missed forecasts.

Sterling received a short-term boost from the UK inflation figures yesterday. The cost of living in the UK ticked up from 2.4% to 2.5% - meeting economists’ expectations. The higher CPI rate coupled with the mediocre average earnings update on Tuesday will keep pressure on the British consumer. Ultimately, if this scenario keeps playing out, it could curtail the Bank of England from tightening monetary policy, and that might keep the pound under the cosh.

The UK will release the retail sales report for July at 9.30am (UK time), and the consensus estimate is 0.2%, which would be an improvement on the 0.5% decline in June. The report, which strips out fuel, is expected to show a 0.1% rise, while the June report was a 0.6% fall. 

The dollar index hit its highest level since late June 2017 as traders continue to flock to the perceived safe-haven asset. Dealers fear the eurozone could be exposed to Turkey, and Brexit fears rumble on too. The firmer greenback continued to drive gold lower, and the metal fell to a level last seen in early 2017.

US retail sales helped the dollar too. The report showed a 0.5% rise in July, while economists were only expecting a reading of 0.1%. The update also revealed that the June report was revised lower to 0.2% from 0.5%. At 1.30pm the US will release housing data and the Philly Fed manufacturing index. Economists are anticipating building permits to be 1.31 million, and the housing starts forecast is 1.26 million. The Philly Fed report is tipped to fall from 25 7 to 22 in August.  

Oil endured a severe sell-off as dealers were worried about China’s future demand for the commodity, and the unexpectedly large jump in US stockpiles added to the selling pressure. The Energy Information Administration update showed that US oil inventories jumped by 6.8 million barrels while the consensus estimate was for a 2.5-million-barrel decline. 

EUR/USD – now that it has broken below the 1.1500 region, we could see further losses. Support might be found at 1.1287 or 1.1156. A bounce back might run into resistance at 1.1500 or 1.1663.

GBP/USD – has been in a downtrend since April, and if the bearish move continues it could target 1.2590. Pullbacks might run into resistance in the 1.2957 to 1.3000 region.       

EUR/GBP – has been pushing higher since April and if the bullish run continues it could target 0.9050. A move lower might find support at 0.8900 or 0.8844. 

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 112.15. Support might be found at 109.93 – the 200-day moving average. 

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