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Mixed Chinese trade data, Europe to rebound

Mixed Chinese trade data, Europe to rebound

The US non-farm payrolls report tends to dominate the headlines, but on Friday the sharp decline seen in US tech stocks was the main story. 

In recent months the tech-focused NASDAQ 100 has been powering ahead. It set a record high in June, and lots of new record highs have been registered since. There was a lot of talk about excessive valuations for a while, but that didn’t stop the bullish run.

On Thursday there was a brutal decline in tech stocks and that hit the S&P 500 and Dow Jones too. The move was so vicious, it caused the major European indices to finish in the red too, even though they were in positive territory earlier in the day.

Friday was like a repeat of Thursday. European markets gained a bit of ground ahead of the US jobs report. The update showed that 1.37 million jobs were added in August, which was a touch below the 1.4 million that economists were predicting. The July report was revised to 1.73 million from 1.76 million. The unemployment rate dropped from 10.2% to 8.4%, comfortably undershooting the 9.8% forecast. Average earnings, on a yearly basis, were 4.7%, and the previous update was revised from 4.8% to 4.7%. All in all, it was a healthy jobs report. When you take into consideration the largely well-received manufacturing and services data was that posted earlier in the week, it adds weight to the argument that the US economy is recovering. The large fall in the jobless rate might take some pressure off Republicans to reach a compromise with the Democrats with respect to the coronavirus relief package.

Equity traders reacted well to the employment numbers, not long into the US session, tech stocks tumbled and the broader US indices were hit hard too. Stocks on this side of the Atlantic finished in the red. Two hours into the US trading day, stocks were at their session lows, but then a recovery began. The NASDAQ 100 closed down 1.27% and the S&P 500% finished 0.81% lower.

Overnight, China posted its trade data for August. The export metric was 9.5%, while economists were expecting 7.1%, and the previous reading was 7.2%. Imports were fell by 2.1%, and the consensus estimate was for growth of 0.1%. The July reading was -1.4%. The high level of exports is likely down to a large amount of personal protective equipment being sold to various governments around the world. The decline in imports points to continued weak internal demand. It was reported the Trump administration is considering imposing export restrictions on the Hong Kong-listed company, Semiconductor Manufacturing International Corporation. Stocks in Asia are mixed, and European indices are tipped to rebound.      

Equity markets in Europe are likely to be quiet today as the stock markets in the US and Canada will remain closed for public holidays.

The Canadian jobs report that was posted on Friday was encouraging too, although the metrics slightly missed economists’ expectations. In August, the unemployment rate fell from 10.9% to 10.2%, and the consensus estimate was 10.1%. The employment change showed that 245,800 jobs were added, which was a drop off from the 418,500 created in July. The vast majority of the jobs created in August were full-time, so that should be a help to the labour market.

Sterling will be in focus today as it was reported last night that Prime Minister Johnson said that if a free trade deal with the EU is no reached by 15 October, it would be time to ‘move on’ and settle for basic WTO terms come 2021.

The US dollar was up for the third day in a row ahead of the US jobs report, and it was pushed higher on the back of the announcement. By the close of business it was fractionally lower on Friday. At the start of last week, it fell to a 28 month low, and then rebounded. Some traders will be wondering whether this is the beginning of the recovery in the dollar, or if it will turn over on itself again. The highs of last week failed to retest the highs of late August, so that does not bode well for the rebound story.  

Gold drifted lower at the back end of last week, but the cooling-off of the US dollar late on Friday helped gold close up on the session. The metal has been range bound lately, but the lows of last week were still comfortably above the lows of late August.  

Oil tumbled last week on reports of weaker gasoline demand in the US. In addition to that, Russia fears that oil demand could fall by as much as 9-10 million barrels per day this year. The bearish mood in stocks at the back of last week didn’t the energy.  

At 7am (UK time) the German industrial production numbers will be published and economists are expecting 4.7%, which would be a drop from the 8.9% registered in June.

The Halifax HPI reading is expected to be 1%, and keep in mind that 1.6% was posted in July. The figure will be posted at 8.30am (UK time).

EUR/USD – has been in an uptrend since April and if the bullish run continues it should target 1.2000 or 1.2140. A pullback might find support at 1.1696 or at the 1.1600 zone. 

GBP/USD – while it holds above the 1.3000 mark, the bullish trend that has been in place since late June should continue, and it might target 1.3515. A move back below 1.3000, could see it target the 1.2800 zone. 

EUR/GBP – Thursday’s daily candle has the potential to be a bullish engulfing and should it move higher, it might retest the 50-day moving average at 0.9019. A break below 0.8864 should put 0.8800 on the radar.  

USD/JPY – while it holds below the 100-day moving average at 106.91, the broader bearish move is likely to remain intact. A move through 105.10 could see it target 104.18. A break above 107.00, should bring 107.92, the 200-day moving average, into sight.  

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