Yesterday’s sharp fall in equity markets just goes to show how fickle sentiment can be as the gains seen at the back end of last week have once again given way to concerns about a fresh slide in the oil price, as investors continued to scratch away at this festering sore on sentiment.

This fresh bout of oil price weakness appears to have been driven by the very same concerns that drove the decline in the first part of last week, namely the distant prospect of any sort of OPEC deal to cut back on production, meaning that prices are likely to remain lower for longer, and it is these worries as well as ripple out effects that appear to be causing most market angst. Downgrades now appear to be coming in the oil patch with some notable names feeling the effects of the analyst pen, with Chevron following in the footsteps of Royal Dutch Shell from S&P scribblers.

Broader concerns also surround the resilience in the overall economic outlook, particularly in China where we got the latest Caixin services PMI number for January early this morning. The weak December reading of 50.2 in stark contrast to the much more bullish official measure had spooked concerns that Chinese consumers were reining back spending in the lead up to Chinese New Year.

This morning’s January reading came in at 52.4 a significant improvement on the previous month and in the process rather undermining the argument that concerns about a Chinese slowdown are the primary factors behind the recent bout of equity market jitters.

The services sector has been the more resilient of the two main sectors of the global economy over the past few months but there has been a concern that the weakness in manufacturing could cause some ripple out effects into the broader economy, as job losses in manufacturing dent consumer spending and cause a slowdown in the wider economy.

The latest services PMI numbers for January from Spain, Italy, France and Germany are broadly expected to remain fairly robust at 54.6, 54.2, 50.6 and 55.4 respectively. The French economy is a particular concern but that isn’t really too much of a surprise given recent events and the fact that the state of emergency is still in place.

In the UK, all of the recent talk has been of how unbalanced recent GDP growth has been with higher consumer spending helping offset the weakness in the manufacturing sector. Today’s services PMI for January is expected to show some softness from the December numbers but not much at 55.4, but we should also be aware that we could come in slightly weaker due to the flooding and sever weather in several parts of the UK, keeping people indoors.

Jobs growth in the US has been one bright spot in the recent economic data and the main reason why the US Federal Reserve felt compelled to lift rates last month, however other data has been less compelling in recent weeks, and today’s ADP employment report may not alter the terms of debate in regard to the wisdom of further rate rises.

Already this week deputy Fed Chairman Stanley Fischer has adopted a much more cautious tone with respect to recent rhetoric surrounding the timeline of further rate moves.  A weak ISM non-manufacturing report for January could shift the debate further onto much more dovish lines if as expected it also slips further.  A reading of 55.1 is expected, down from 55.3, while the latest ADP Employment report is expected to show 193k new jobs added, down from the 257k added in December.

The bumper jobs numbers in December could well have been boosted by temporary pre-Christmas hiring and this effect could well tail off in January. .

EURUSD – the euro continues to range trade but it is eking high towards the 1.1000 area where we have the 100 and 200 day MA’s. Key support remains between 1.0775 and 1.0800, with a break retargeting the 1.0600 area.

GBPUSD – this week’s break through 1.4350 and last week’s high is an encouraging sign that we might well have seen a short term base, and potentially see a return towards 1.4800. We still need to hold above the 1.4220/30 area or run the risk of a move towards the recent lows at 1.4085.

EURGBP – the drop through the lows of last week suggests we could well head back towards the 0.7480 area. As long as we hold above 0.7480 the risk remains for a return to the 200 week MA at the 0.7900 level.

USDJPY – last week’s break above 120.00 saw a sharp move towards the 200 day MA at 121.60 which has so far held. If we fall back below 119.80 we could well see a move back towards 118.20. Only a move back through the 200 day MA has the potential to retargets a move back towards 123.00.

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