Equity markets had another solid day yesterday on the back of rising optimism that the talks between China and the US on trade would be extended into March without any resulting rise in existing tariffs, after President Trump said he would be minded to allow the deadline to slip so long as progress was being made.
Reports that China’s President Xi himself would also be attending the talks this week in Beijing between US and Chinese negotiators added to the overall feeling of optimism, sending US markets to their highest levels this year.
The latest China trade numbers for January were surprisingly upbeat given the doom and gloom surrounding its economy as both imports and exports picked up in January. This strength would appear to suggest that recent stimulus measures by Chinese authorities are starting to have an effect, or they could merely be a pre Chinese New Year boost, as demand is brought forward from the February numbers.
Imports for January still showed a decline of 1.5%, but it was well above expectations of a 10.2% and much better than the 7.6% drop in December. More crucially exports rose, by 9.1%, much better than the 3.1% decline seen in December.
Markets in Europe had another solid session, though Spanish markets underperformed after the Spanish budget was blocked in the Spanish parliament, throwing up the prospect of an imminent general election in the coming weeks.
Later this morning we will get to find out if the German economy fell into recession at the end of 2018 when we get sight of preliminary Q4 GDP for Germany. In Q3 the economy contracted by 0.2% largely as a result of a sharp slowdown in the automotive sector, due to emissions regulatory changes and a slowdown in China. Earlier this year German authorities said that they expected the economy to just about avoid a contraction, but that growth would be a modest 0.1%. That calculus has taken a significant knock in recent weeks after data showing that not only did industrial production fall even further in December, but that the German consumer also retrenched sharply as retail sales declined 4.3%.
These numbers would suggest that there is considerable downside risk to the forecasts that we will see an expansion of 0.1%.
Following on from these Germany numbers we’ll also get sight of the preliminary EU Q4 GDP numbers which are expected to show no change from the Q3 expansion of 0.2%. A miss on the earlier German number to the downside or upside would have the potential to introduce the risk of a similar adjustment in these numbers.
On the subject of Brexit Prime Minister Theresa May will be putting forward a new parliamentary motion today that allows her to continue to negotiate with the EU to seek changes to the Irish backstop, as per the previous vote on the 29th January. MPs might seek to create mischief by attempting to amend the motion with an attempt to force another meaningful vote on the deal, try and force a vote on a second referendum, or to revoke article 50.
Despite the recent pause announced by the US Federal Reserve the US dollar has continued to push higher, hitting a two-month high against a basket of currencies, largely due to a softening of economic activity elsewhere around the world. The euro has come under pressure, along with the Japanese yen and the pound due to recent softness in the latest economic data which is raising the prospect that any one of these central banks may well have to ease policy again sometime in the near future.
EURUSD – hasn’t followed through on the key day reversal though it hasn’t as yet fallen below the 1.1250 level, which could well prompt further losses towards the November low at 1.1215. A fall below 1.1200 opens up the 1.1000 level. A move back above 1.1350 opens up a move towards 1.1400.
GBPUSD – still looks soggy but is still managing to hold above the 1.2820 level for now. While it does the risk remains for a move back towards the 1.3020 area. A move below the 1.2820 level could well open up a move towards 1.2700. Any rebounds need to move back above the 1.3020 level to stabilise.
EURGBP – edging back towards the highs last week at 0.8820. A move through here opens up the 200-day MA at 0.8860. While below 0.8820 the risk remains for a return to the 0.8720 area.
USDJPY – appears to be closing in on the 111.30 area and 200-day MA. A break of the 200-day MA opens up the 112.30 area. Support now lies back near the 110.20 level, this week’s breakout level.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.