European stocks look set for a higher open on Tuesday ahead of data for German factory orders, Eurozone GDP and earnings from UK homebuilder Berkeley Group.
The absence of US investors made for quiet trading in European stock markets on Monday so their return on Tuesday could see markets try to break recent ranges. The FTSE 100 has been capped for 6900 for the last three weeks.
The action on Monday was found in oil markets and it was the unravelling of a sharp intraday rally in oil that saw stock markets pare gains later on. The sudden 5% jump in oil futures contracts on rumours of an agreement reached between Saudi Arabia and Russia gives an indication of the importance the market is placing on OPEC/Russian output. Clearly the deal announced to share technology amongst other things was not the output freeze markets had been hoping for.
The reaction in Sterling to another piece of evidence that the UK economy has weathered the Brexit storm just fine, was more muted. The huge recovery in the Services PMI was less of a surprise than the rebound in manufacturing so the reaction in markets was always going to be smaller. Traders will have half an eye on Wednesday’s meeting between BOE governor Mark Carney and politicians, where he is likely to take a downbeat tone in defence of cutting interest rates and renewing bond-buying with such little available evidence it was needed.
The Australian dollar has seen a sharp move higher overnight as the Reserve Bank of Australia opted to keep interest rates on hold as expected. The RBA is waiting to see some impact from the decision to cut rates to a record low of 1.5% in August.
With minimal expectation of policy change from the ECB, the euro has been pushed around by movements in the US dollar and Sterling. EUR/USD fell on Monday after PMI data showed Germany’s service sector faltered in August. Data released on Tuesday is expected to show factory orders recovered by 0.5% in July after a decline of 0.4% in June. This comes ahead of industrial production data on Wednesday, where both numbers have been volatile without much consistent growth or decline m/m. Judging on Germany’s manufacturing PMI, the sector appears stable.
Final figures for Eurozone Q2 growth are expected to be confirmed at 0.3% q/q, and 1.6% y/y.
The Federal Reserve will be looking for resiliency in the US service sector to make up for the recent downturn in manufacturing, particularly concerning this late in the current business cycle. The ISM Manufacturing Index fell to 49.4 from 52.6 the prior month; both the production and the new-orders sub-indices dropped significantly.
In data to be relased today, ISM non-manufacturing is expected to rise slightly to 55.7 from 55.5 whilst the final Markit services PMI is expected to print a more modest 51.1 after a flash reading of 50.9, which slowed from 51.4 last month.
EURUSD – After the sharp pullback from 1.1245 on Friday, the euro stalled above 1.1130 support on Monday. Short term momentum favours a downside break. Potential resistance from 1.1245 again then 1.1340 with possible support at 1.1130 then 1.1045.
GBPUSD – A shooting star from 1.3370, the August 3 swing high suggests a bigger pullback towards 1.3185 / 1.32 in cable. Uptrend means 1.3060 should hold. Possible resistance at 1.3370 then 1.3480.
EURGBP – The euro Sterling pair has found some support with a daily hammer pattern at 0.8350, suggesting a bounce towards possible resistance at 0.8485. A break lower could find support at 0.8250.
USDJPY – Dollar yen has pulled back to broken long term trendline, at least 102.80 should hold for the upside breakout to continue. Possible resistance at 105 then 105.70
Equity market calls
FTSE100: to open 14 points higher at 6,893
DAX: to open 14 points higher at 10,686
CAC40: to open 6 points higher at 4,547