It was a relatively subdued session for European stocks yesterday, with the FTSE 100 performing well, while the DAX underperformed. A strong performance from financials helped the UK index, while weak China exports data and a fall in business confidence appears to be hurt the DAX.
It was a much more buoyant session for US markets which set new records yesterday, with the S&P 500 hitting another record high above 4,500, while US 10-year yields pushed up to their highest levels in over a week. There doesn’t appear to have been a singular driver for the sudden rise in yields, although Fed chair Jay Powell’s speech tomorrow maybe provoking a little bit weakness in treasury prices.
It’s still difficult to envisage that anything he says will change the markets outlook significantly on the timing of a taper. The picture on that is more likely to become clearer in the aftermath of next week’s non-farm payrolls report. As we look towards today’s European open, we look set for a slightly softer start with Asia markets seeing a slightly softer feel to the trading day with Chinese stocks in particular slipping back.
It’s an important day for US economic data, both current and rear-view mirror, especially so given the start of this year’s Jackson Hole symposium later today. Starting with weekly jobless claims with one eye on next week’s payrolls report, these are expected to remain steady at 350,000, while continuing claims are expected to fall further to 2.76m, from 2.82m.
We also have the latest iteration of US Q2 GDP. The rebound in the US economy from last year’s slump of -31.4% fall in GDP, has been decent, with four consecutive quarters of expansion, although the extent of the rebound has been slightly less than was anticipated back in April. In Q1 the economy expanded by 6.4%, driven largely by two big stimulus interventions by the US government at the end of last year, as well as in March. The spill over effects of this were expected to accelerate into the Q2 numbers, especially given that the various fiscal interventions are still ongoing and due to expire in September.
Manufacturing has been strong in Q2, while the slow recovery in the services sector, along with the return of theme parks has given a boost to economic activity. Nonetheless the extent of the economic rebound in Q2 was somewhat below expectations with initial expectations of 8.5% falling well short at 6.5%. On any measure that headline number is still decent, especially given that personal consumption was stronger than expected at 11.8%, and is expected to be upgraded to 12.2%, however the fact it fell short suggests that there are headwinds that US businesses are having to contend with.
While personal consumption has been strong some sectors are still struggling, while supply chain disruptions are also acting as a drag, with shortages of key parts prompting some factory shutdowns and other business disruptions. Expectations are for a slight upward revision to 6.7%.
EUR/USD – held above the 1.1720 support yesterday and now looks for a move the 1.1800 area and the 1.1830 resistance level. Below 1.1700 reopens the lows of 1.1660 lows of last week.
GBP/USD – has finally broken through to the upside, above the 1.3750 area and opening up a move towards 1.3820. Below 1.3680 retargets the lows last week.
EUR/GBP – struggling to make headway to the upside, with a break below support at the 0.8520 area, opening the potential for a move towards 0.8480. We need to see a move above the 0.8580 area, to open a move to the 0.8640 area.
USD/JPY – still looking toppy near to 110.20, and the 200-day MA, with support at the lows last week at the 109.10 area. We need to see a break either side to determine the direction of the next move.