European markets had a somewhat mixed session yesterday, with the FTSE 100 bearing the brunt of Europe’s losses on a number of disappointing earnings updates, as well as a stronger pound.

The German DAX also slipped to a three-month low, as a result of an auto sector that continues to be viewed as a source of suspicion, this time due to concerns about industry malpractice, on reports that the EU is investigating allegations of improper collusion, though a slowdown in the latest July flash PMI’s didn’t help. This modest slowdown could well translate into a weaker July IFO business survey later this morning, which is expected to fall back to 114.9 from 115.1.

Yesterday’s International Monetary Fund update of the global economy was greeted with an air of nonchalance, as the fund downgraded the US and UK, while upgrading the EU and Japan. It is certainly true that both the US and the UK have been showing some signs of economic weakness, along with ongoing political uncertainty, however the timing of the funds upgrade to the EU and Japan forecasts is surprising given that yesterday’s PMI readings showed their lowest levels this year for Japanese manufacturing and German services.

It’s not been a particular good few years for the IMF, tarnished by a number of misguided, politically-motivated interventions in recent EU bailouts of Greece, as well as some questionable economic forecasts in the lead-up to and aftermath of last year’s Brexit vote. This has led investors and markets in general to become much more cynical about the fund's economic predictions with the result that they have, in some circles, tended to be viewed as about as much use as an icy windscreen on a winter's morning.

Despite this, US equity markets continues to hold ahead of this week's latest Federal Reserve rate meeting, as well as a raft of earnings numbers from the tech sector which started last night with the latest numbers from Google owner, Alphabet, which came in ahead of expectations, sending the share price briefly back above $1,000 in after-hours trading, before slipping back again over disappointment around some of the internals.

Expectations around the sector continue to get ramped up, with another record high for the NASDAQ last night, with Amazon and Facebook also set to report later this week.

Crude oil prices also ramped higher yesterday on a much more aggressive tone from Russia and Saudi Arabia around compliance with the respect to the output cap. The Saudi energy minister insisted that they would forcefully demand the participation of all, a call that was backed by the Russian energy minister, Alexander Novak.

The Saudi’s have been among the most aggressive in cutting output and are now cutting their exports as well, though both Libya and Nigeria continue to remain exempt from the curbs, and OPEC gave no indication that they were considering future output curbs. One other factor that didn’t hurt with respect to yesterday’s rebound was that US rig counts do appear to be showing signs of plateauing, though that could well change if US oil prices head back towards $50 again.

Forex snapshot

EUR/USD – the euro underwent a period of consolidation yesterday below the 1.1700 area and above the 1.1615 level. The next target remains the 200 week MA at 1.1800. We now have support at 1.1610, while below that support at the 1.1480 area. Only a break below the 1.1480 area opens up a pullback towards the 1.1300 area.

GBP/USD – managed to push above the 1.3000 level pushing up to 1.3060 before slipping back a little. The upward momentum remains intact while above the 1.2900 level. A move below 1.2900 opens up the 1.2700 area. We also have interim support at 1.2950.

EUR/GBP – has found some resistance just below the 0.9000 area and has slipped back to the 0.8920 area. Last year’s high at 0.9300 remains possible, however a break below 0.8920 could well open up a move back to the support at 0.8870/80 in the short term. area.

USD/JPY – have rebounded from the 110.60 area, but the pressure remains to the downside while below the 111.50/60 area.  We need to recover back through the 112.30 area to look at a retest of the 113.20 area.


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