Europe tipped to open lower as US jobs report bullish sentiment fade

CMC Markets

European and US equity markets finished on a positive note on Friday thanks to the impressive US non-farm payrolls report. 

The headline figure came in at 266,000, which hammered the 180,000 consensus estimate. The October report was revised higher from 128,000 to 156,000. The unemployment rate was tipped to hold steady at 3.6%, but it dipped to 3.5% - a joint fifty year low. Average earning was 3.1%, and the previous reading was revised up to 3.2%. From all angles it was a stellar jobs report, the strongest seen for many months.

Last week the US-China trade dispute was in focus even though not much actually happened. The economic updates from the US earlier in the week were under whelming. The ISM manufacturing reading edged lower to 48.1, and the ISM non-manufacturing report slipped to 53.9. Going into the US jobs report, traders were a little cautious that the update could be soft, so the great set of figures kind of caught traders off guard.

The greenback enjoyed a rally in the wake of the employment update. When the Fed cut rates in October, the third cut since June, the central bank hinted that it would be the last change in rates for some time. A section of traders called the move a hawkish cut. Taking into account the ultra-low unemployment rate combined with the decent earnings growth, it suggests the US central bank will hold fire in terms of altering interest rates for some time.

This US-China trade saga will remain in focus this week as the Trump administration is still scheduled to slap tariffs on more than $150 billion worth of Chinese imports on 15 December, unless something changes between now and then.  At the back end of last week, Beijing confirmed that it will waive import tariffs on some pork as well as soybean shipments from the US ,and that helped the relationship somewhat. The Trump administration are keen to secure tougher laws in relation to intellectual property rights, so the agricultural goods move on its own is unlikely to be enough to bring about a meaningful deal.    

Sterling had a positive run last week as the pro-business Conservative party are holding their comfortable lead in the opinion polls. The pound recently hit a level last seen in May 2017 against the euro, while it printed a seven month high versus the greenback.   

Over the weekend, China released the latest trade data. Imports increased by 0.3% while economists were expecting a drop of 1.8%.The October reading was -6.4%. The major rebound in imports indicates that domestic demand is on the rise again – which ties in with the latest official manufacturing and non-manufacturing reports from China. Exports fell by 1.1%, and the consensus estimate was for growth of 1%.

The final reading Japanese annualised quarterly GDP was 1.8%, while the consensus estimate was 0.7%.  Stocks in Asia are largely positive on the back of the economic data.  

At 7am (UK time), Germany will post its trade data. The exports component will be closely watched by traders seeing as the country has a major manufacturing sector, but global demand is cooling. Economists are expecting exports to decline by 0.7%, while imports are tipped to show zero growth.

Later today, Canada will release housing data. Housing starts are anticipated it to come in at 221,200, while the building permits are expected to fall by 2%.  

EUR/USD – has largely been moving lower since mid-October and a break below 1.1000, might put the 1.0900-1.0879 area on the radar. A move to the upside might run into the resistance at 1.1179.

GBP/USD – has been in a bullish trend since early September and if the positive run continues it might target 1.3361. A pullback might find support at 1.3000.

EUR/GBP – recently fell to a level last seen in May 2017. A break below 0.8400 should pave the way for 0.8313 to be retested. A rebound in the currency pair might target the 0.8600 area.

USD/JPY – while it holds above the 50-day moving average at 108.54 it could target 110.00. A move back below the 50-day moving average might bring 107.88 into play.