We saw a cautiously positive start to the new week for European markets, with the FTSE 100 underperforming due to weakness in the energy sector, as crude oil and natural gas prices slid sharply.
The main catalyst for the slide in energy prices was two-fold. The slide in oil prices came about because of Saudi Aramco cutting selling prices over concern that US producers are stealing market share, as well as slowing demand. Natural gas prices also slid despite colder weather, with supplies and inventory remaining at highly elevated levels.
US markets performed better than they did on Friday in the wake of a decent non-farm payrolls report and lacklustre ISM services survey for December, with tech outperforming. A decent performance from the Nasdaq 100, helped drive sentiment after Nvidia announced a significant improvement in chip design, with extra components which would allow the better use of AI, sending the shares up to fresh record highs.
The move higher was helped by weakness in US treasury yields which slipped further away from their peaks of last week in anticipation of this week’s US inflation numbers, after New York Fed one-year inflation expectations fell to 3.01% in December, from 3.36%.
The strong US finish seen last night looks set to ripple out into today’s European open with a solid start expected.
It’s set to be a fairly quiet day on the economic data front for Europe, with the latest German industrial production numbers for November, as well as EU unemployment. Yesterday’s German factory orders numbers turned out to be somewhat of a letdown, rising by 0.3%, well below forecasts of 1.1%.
The German economy has shown little sign of a pickup in economic activity in recent months; even as inflationary pressures have eased, business confidence has remained low. Today’s industrial production data is expected to show a modest rise of 0.3% after the -0.4% decline seen in November.
Another poor set of numbers today is likely to cast further doubt on the ECB’s insistence that they won’t consider the prospect of a rate cut before the summer, as indicated by Croatian ECB governing council member Boris Vujcic yesterday. With Europe’s largest economy finding itself in the midst of widespread economic unrest, it is increasingly clear that the pressure on the ECB to start considering a modest easing will only increase.
Today’s EU unemployment numbers for November are forecast to show unemployment remaining steady at 6.5%.
EUR/USD – appears to have found a level of support at 1.0875 last week. Still feels like it wants to move higher while above the 200-day SMA at 1.0830. A break above 1.1030 has the potential to target the December peaks at 1.1140.
GBP/USD – continues to find support just above the 1.2600 area. Remains in the uptrend from the October lows. The bias remains for further gains while above the 200-day SMA as well as support at the 1.2590 area. On course for a move towards 1.3000 while above the 200-day SMA at 1.2520.
EUR/GBP – continues to drift lower with support at the 0.8570/80 area, with the main support at the December lows at 0.8545. Currently have resistance at the 0.8670 area.
USD/JPY – ran out of steam at the 146.00 level last week and continues to look vulnerable to a pullback towards the 200-day SMA at 143.20, with the 140.00 lows the next support.
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